Recent Developments in India’s Monetary Policy

The Reserve Bank of India (RBI) has adopted a ‘wait and watch’ approach, observing how previous monetary policies are being transmitted into the system. This stance was highlighted by Sakshi Gupta, principal economist at HDFC Bank, following the RBI’s Monetary Policy Committee decision to keep the benchmark repo rate unchanged.

Background on the RBI’s Decision

The RBI’s Monetary Policy Committee concluded its three-day meeting by retaining the repo rate at 5.5% in a unanimous decision. This move follows a 50-basis point reduction in the June policy review meeting. According to Gupta, the policy rate decision was widely expected, especially considering the 100 bps rate cut already implemented in 2025.

Mixed Economic Data

Gupta noted that the current economic data is mixed, with positive results observed from the rural side. Despite this, the RBI is closely watching the growth front and inflation trajectory. Currently, inflation is decreasing, but it is expected to pick up in FY26 due to an unfavorable base effect. The RBI has projected Q1FY27 inflation numbers to be around 4.9%.

Uncertainties and Evolving Situations

The uncertainties surrounding tariffs are still evolving, and the monetary policy transmission is ongoing, as stated by RBI Governor Sanjay Malhotra. Gupta echoed this sentiment, stating that the tariff talks are still in evolving situations, making the impact on growth very uncertain.

Conclusion

In conclusion, the RBI’s decision to maintain the status quo on the benchmark repo rate reflects its cautious approach, given the mixed economic data and evolving situations. As the Indian economy continues to navigate these uncertainties, the RBI’s ‘wait and watch’ stance will be crucial in determining the future trajectory of monetary policy. The coming months will be closely watched as the effects of previous policy decisions unfold and new challenges emerge, particularly with regards to inflation and growth.