In its monetary policy statement, the central bank said sharp swings in oil prices triggered by geopolitical developments continue to pose risks to the inflation trajectory.
“Global oil prices have remained volatile with sharp two-way movements triggered by geopolitical developments, blurring the near-term outlook. Although generalised inflation pressures continue to remain modest so far, the risks of higher food, fuel and other input prices translating into a broad-based increase in inflation persist,” the Monetary Policy Committee (MPC) said.
The caution comes after the RBI left the repo rate unchanged at 5.25% for the third straight policy review this financial year, as it weighed the impact of elevated energy prices and supply disruptions linked to the ongoing West Asia conflict.
Despite the inflation risks, the central bank marginally raised its FY27 growth forecast to 6.7% while lowering its inflation projection to 5%. Retail inflation, however, remains above the RBI’s medium-term target of 4%, with June CPI inflation coming in at 4.38%.
Economists said the central bank’s decision to stay on hold reflects the uncertainty surrounding crude oil prices.”The RBI is rightly adopting a wait-and-watch approach, given uncertainty on oil prices. For now, abating war risks, recovering monsoon, ample food buffer, and inflation within the band all allow the RBI to hold. A rate hike at this juncture would have appeared premature and costly given that rural growth impulses are slowing and could further get impacted given the reduced fiscal capacity,” Apoorva Javdekar, chief economist at Muthoot Fincorp, told Reuters.
Aditi Nayar, chief economist at ICRA, said the RBI’s revised growth and inflation projections appear to factor in an average crude oil price of $80-85 a barrel along with a moderate rainfall deficit.
“The tone of the policy statement was relatively neutral, and does not suggest that rate tightening is imminent,” she told Reuters.
Also Read: RBI GDP Growth 2026-27: Malhotra & Co lift FY27 GDP forecast to 6.7% from 6.6% on growth resilience
Vikram Chhabra, senior economist at 360 ONE Asset, said the policy path could change if crude prices remain elevated.
“If the geopolitical situation stabilises and the monsoon remains close to normal, we expect the RBI to keep rates unchanged for an extended period. However, if crude oil prices remain elevated and a weak monsoon disrupts agricultural output, driving up food inflation, the RBI may be compelled to raise interest rates by the end of FY27,” Chhabra told Reuters.
Sakshi Gupta, principal economist at HDFC Bank, also said the bar for a rate hike remains high despite the uncertainty around oil prices.
“Given the commentary from RBI today, it seems the bar for a hike is set high and would require widespread second-round inflationary pressures beyond temporary oil and food inflation spikes,” Gupta told Reuters, adding that the central bank remains focused on domestic inflation and growth dynamics despite rising rate expectations in developed markets.
The RBI’s comments also come at a time when the rupee has been under pressure from higher oil prices, capital outflows, a widening trade deficit and a stronger US dollar. The currency has weakened about 7% against the dollar so far this year, highlighting the broader macroeconomic risks posed by prolonged volatility in global energy markets.