The Monetary Policy Committee (MPC) is expected to leave the repo rate unchanged at 5.25% at its review next week, an FE poll of economists has found. The Reserve Bank of India (RBI) is also likely to retain its “neutral” stance while adopting a cautious—rather than hawkish— tone amid rising inflation risks. The FY27 inflation forecast of 5.1% is widely expected to be left untouched, though some economists believe the GDP growth projection could be raised from the current 6.6%.
The MPC meets against a challenging backdrop: elevated crude oil prices, uncertainty over El Niño’s impact on food inflation and persistent geopolitical tensions, even as domestic growth indicators have surprised on the upside. Most of the 13 economists FE spoke with believe these conditions warrant a pause rather than an immediate policy response, with the central bank relying on liquidity management tools instead of interest rate changes. Aastha Gudwani and Amruta Ghare, economists at Barclays, expect the MPC to continue its “neutral pause”, arguing that prudence lies in waiting out volatile oil prices and weather-related uncertainties.
“There is little reason for the RBI to move rates at this stage,” said Megha Arora, director and head of economics at India Ratings & Research. While consumer price inflation remains below the RBI’s upper tolerance band of 6%, upside risks from food and fuel prices persist because of El Nino and crude oil volatility, she said, adding that the progress of the monsoon, oil prices, currency movements and liquidity conditions would remain the key variables.
Sakshi Gupta, principal economist at HDFC Bank, also sees no change in either rates or stance, saying risks from elevated energy prices and an uneven monsoon continue to warrant caution. She sees the possibility of a rate hike only by February 2027, and only if inflationary pressures prove persistent.
Despite softer-than-expected inflation in the first quarter, most economists expect the RBI to hold its FY27 inflation projection at 5.1%. Gaura Sengupta, chief economist at IDFC FIRST Bank, expects the forecast to be retained given continuing uncertainty over food prices. Manoranjan Sharma, chief economist at Infomerics Ratings, concurs, pegging the projection in the 5-5.2% range and arguing that the June revision had already factored in higher oil prices and weather-related risks.
On growth, however, the central bank could turn modestly more optimistic after stronger-than-expected high-frequency indicators. Sengupta expects the FY27 GDP growth projection to be raised to 6.8% from 6.6%, while Arora said India Ratings would revisit its own 6.7% forecast later this month after assessing the impact of improved rainfall in July. SBI Research has projected first-quarter GDP growth at around 7%, citing stronger economic activity and improving monsoon conditions.
The central bank’s communication, economists say, is likely to become more guarded. While none anticipates an immediate shift to a hawkish stance, several expect the RBI to further underscore inflation risks.
“I expect the tone to be slightly cautious, not hawkish,” said Madan Sabnavis, chief economist at Bank of Baroda, noting that although inflation is expected to rise because of El Nino, the RBI has historically been data-dependent and is unlikely to react pre-emptively. Sengupta expects the communication to be “cautious, leaning towards hawkish”, reflecting stronger growth alongside persistent inflation uncertainties.
Liquidity management is expected to remain a key focus, with the RBI likely to continue deploying variable rate repo (VRR) auctions, open market operations (OMOs) and foreign exchange swaps depending on evolving conditions. Gupta said the strategy would hinge on the extent of FCNR(B) inflows, with long-term VRRs or FX swaps likely preferred over OMOs if a durable liquidity surplus emerges. Gudwani and Ghare also expect the RBI to lean on non-rate measures, noting that sizeable FCNR(B) inflows and foreign portfolio investments into government securities have eased pressure on the rupee, reducing the need for tightening despite heightened geopolitical risks.
Beyond August, economists remain divided on the policy trajectory. While HDFC Bank’s Gupta sees the possibility of one rate hike in February 2027 if inflation risks persist, Infomerics expects the next move to be a cut in early 2027 — provided inflation moves sustainably towards the RBI’s 4% target.