The Reserve Bank of India’s Monetary Policy Committee (MPC) members have expressed growing concern over inflationary pressures stemming from the prolonged West Asia conflict, rising energy prices and a potentially weak monsoon, even as they unanimously backed a pause in interest rates earlier this month. Minutes of the MPC’s June 3-5 meeting, released today, showed members favouring a “wait-and-watch” approach amid heightened uncertainty over the inflation-growth outlook.
While retaining the repo rate at 5.25 per cent, policymakers flagged the risk of higher fuel and commodity prices feeding into broader inflation, though they said underlying price pressures remain relatively contained for now. The committee also retained its neutral policy stance.
Governor Sanjay Malhotra said inflation is projected to rise to 5.1 per cent in 2026-27 and could touch 5.9 per cent in the third quarter, close to the upper tolerance band of 6 per cent.
While stressing the need to remain vigilant against inflation becoming generalised, the Governor said that going forward, revisions in retail prices of petrol and diesel in May would lead to higher fuel inflation in the coming months. Several members highlighted the impact of the continuing West Asia conflict on global supply chains and energy markets.
External MPC member Dr Nagesh Kumar said the crisis has emerged as an important near-term shock for the Indian economy, given the country’s dependence on imported hydrocarbons and fertilisers and the importance of the Gulf region for exports and remittances.
Economist Saugata Bhattacharya warned that inflation risks now appear to be outweighing growth concerns, citing rising inflation expectations, elevated commodity prices and the possibility of higher input costs being passed on to consumers.
However, members stopped short of advocating tighter monetary policy, arguing that the full impact of the geopolitical shock remains uncertain.
Deputy Governor Poonam Gupta said growth is expected to slow to 6.6 per cent this fiscal while inflation may edge up to 5.1 per cent, but noted that the economy has so far remained resilient, supported by strong credit growth and stable financial conditions.
The minutes also revealed concerns over the India Meteorological Department’s forecast of a below-normal southwest monsoon and possible El Niño conditions, which could put upward pressure on food prices and affect rural demand.
The MPC has projected GDP growth at 6.6 per cent for 2026-27 while revising inflation expectations upward to 5.1 per cent, reflecting higher crude oil prices and supply-chain disruptions.
Despite the risks, all six MPC members voted to maintain the status quo, arguing that greater clarity is needed on the trajectory of inflation, global commodity prices and monsoon conditions before any policy action is considered.
