RBI’s MPC minutes indicate hardening of interest rates

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MPC chairman and Reserve Bank of India (RBI) Governor Sanjay Malhotra said the hardening of inflation suggest a recalibration of policy rate. | Photo Credit: The Hindu

The policy Repo rate which has remained unchanged at 5.25% since February 2026 is expected to rise this year going by the observations made by Monetary Policy Committee (MPC) members as recorded in the minutes of the August MPC meeting released on Wednesday (August 19, 2026).

MPC chairman and Reserve Bank of India (RBI) Governor Sanjay Malhotra said the hardening of inflation suggest a recalibration of policy rate.

“The average inflation last year, when the policy rate, was brought down to 5.25%, was only 2%,” Mr. Malhotra said in the minutes.

“Not only has headline inflation already averaged 3.93% this year, even core excluding precious metals is expected to converge to core inflation in the last quarter of this financial year, with core inflation projected to average 4.3% in 2026-27,” he stated.

“However, I would prefer to wait for more certainty to emerge on the inflation trajectory in terms of the persistence of realised prints at these or higher levels, the forecast and the likely levels to which inflation may normalise and settle, for any recalibration of the policy rate,” he said.

“We also need to be watchful as the risks of higher food, fuel and other input prices translating into a broad-based increase in inflation and de-anchoring of expectations persist. Any evidence of these risks materialising may need policy tightening,” he pointed out.

MPC member and RBI Deputy Governor Poonam Gupta in her statement stated that given that the headline inflation is projected to peak to a level as high as 5.9% in Q3 2026-27, a case for a hike may emerge during the course of the year.

Stating that the growth projections rest on the revised assumptions for oil prices, Dr. Gupta said that based on the current assessment of oil price futures, it would be reasonable to expect oil prices to average about U.S. $90 per barrel during the year, close to the level assumed in the IMF’s WEO update of July 2026.

Considering such factors, “the scope for any further easing does not seem to exist at the current juncture.”

“Instead, given that the headline inflation is projected to peak to a level as high as 5.9% in Q3 2026-27, a case for a hike may emerge during the course of the year. I believe that with persistent uncertainty on account of global developments and weather-related risks, the best course of action would be to wait and watch a bit more,” she stated.

“This would allow for the weather-related uncertainties to fully settle; to ascertain how far the supply side inflation is getting entrenched; and to get some more clarity on the global front,” she added.

External MPC member Saugata Bhattacharya stated that the persistence of high fuel prices would feed into second round inflation, resulting from pass throughs of higher input costs to consumer prices.