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Informist, Wednesday, Aug. 5, 2026

 

MUMBAI - Rahul Bajoria, head of India and ASEAN Economic Research, BofA Securities, said the following on the Reserve Bank of India's third bi-monthly monetary policy statement for the financial year 2026-27 (Apr-Mar), detailed Wednesday:

 

Amid continued global volatility, the MPC today unanimously voted to keep the repo rate unchanged at 5.25% while also maintaining a neutral stance. However, the tone of the governor was still dovish, with global trade uncertainty, weather risks, and benign underlying inflation still being flagged as risk factors the RBI is monitoring. The RBI did lower its inflation projections marginally while raising the GDP growth forecasts slightly by 10 basis points each, but we do not see any clear commitment to a shift in policy behaviour, which we were expecting. Still, given that the incoming high frequency data is coming in quite strong, we see GDP growth momentum potentially being stronger than both RBI projections and our baseline GDP assumptions. Given the early signs of inflation rising and potential for growth to surprise on the upside, we believe RBI still may need to pivot to a more hawkish bias as growth visibility improves, and inflation risks start to manifest themselves.

 

While the governor's tone was dovish, and the revised projections for growth (+10bps) and inflation (-10bps) also point to an improving growth-inflation dynamic, we believe that given the MPC's inflation projections, the real rate will turn negative in Q3FY27 (December quarter) and will remain so till Q1FY28 (June quarter). Given this, and the improved outlook for growth with potential upside, we continue to retain our call of a 50bps rate hike starting December 2026 (25bps in Dec and 25bps in Feb-2027). Still, given the dovish guidance today, we believe a hike has been ruled out in October; however, the incoming domestic data and the evolving narrative around the Federal Reserve's outlook remains key to watch.

 

On the growth inflation dynamic, the RBI revised its growth projection higher (+10bps) to 6.7% yoy with risks evenly balanced, owing to the resilient HFIs so far. GDP growth for H1 is now seen at 6.7% (vs 6.5% previously) while H2 (Oct-Mar) is retained at 6.7% with some recovery expected in Q1FY28 (at 7.3%). Meanwhile, the MPC revised its inflation forecast lower by 10bps to 5.0% yoy with a greater downward revision in core inflation projections (by 40 bps) to 4.3%. Headline inflation is expected to peak in Q3 (December quarter) and moderate thereafter, suggesting the inflationary pressures are likely to be primarily driven by supply side pressures (food and fuel) and not be broad-based, with the demand pressures expected to remain contained." End

 

Compiled by Diksha Tripathy 

Filed by Himanshi Gupta

 

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