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RBI minutes keep rate-hike door open amid supply-led inflation risks
The RBI left the policy repo rate at 5.25% on Aug. 5, while citing oil-driven price pressures that could broaden inflation and require policy tightening.
India's central bank signaled it is still considering future rate hikes, according to minutes from its rate-setting committee, as it monitors whether supply-sparked inflation is starting to spread into the broader economy. Reuters reports the RBI said the risks of higher food, fuel and other input prices translating into broad-based inflation remain, and that any evidence of those risks materializing may call for policy tightening. The panel had voted unanimously to keep the policy repo rate unchanged at 5.25% earlier this month, and retained its monetary policy stance at "neutral."
The minutes also pointed to the sharp rise in oil prices tied to the Iran war as a key factor behind inflation concerns, with markets pricing in the possibility of higher borrowing costs and the move weighing on the Indian rupee. Reuters notes that headline consumer inflation was 4.45% in July, comfortably within the RBI's 2% to 6% tolerance band, and that the central bank has a 4% medium-term target. Still, the RBI chief, Sanjay Malhotra, said inflation appears to be normalizing from earlier benign levels, even if there are limited signs it has become generalized so far.
In its August meeting, the RBI trimmed its forecast for average inflation for the current financial year to 5% from 5.1%, and nudged up its economic growth forecast to 6.7%. The RBI has kept policy rates unchanged so far this year, setting it apart from regional peers that have tightened in response to higher energy prices and war-related currency volatility.