RBI holds again in August

RBI stands pat for fourth successive meeting: On 3–5 August, the monetary policy committee of the Reserve Bank of India (RBI) left its policy rate at 5.25% for the fourth consecutive meeting. The vote was unanimous. August’s hold had been widely anticipated by the market.

RBI notes lack of feed-through of Iran energy shock: In justifying the RBI’s decision, Governor Sanjay Malhotra noted that temporary supply factors were behind inflation rising in June above the 4.0% target for the first time in 17 months. The Hormuz Strait crisis has stoked energy prices, but this has yet to feed through meaningfully to the wider consumer basket.Meanwhile, the RBI raised its projection for GDP growth in FY 2026 to 6.7% from 6.6%, pointing to “resilient” domestic demand and “robust” exports.

Panelists begin to hike interest rate forecasts: The monetary policy committee opted to leave its monetary policy stance as ‘neutral’.Our panel has begun to raise its projections for the policy rate, with roughly half now expecting the RBI to tighten monetary policy ahead instead of standing pat. Much will depend on the path of the Iran war, particularly the speed with which the Strait of Hormuz is reopened; a longer closure would likely lead price pressures to spread beyond fuel and energy via second-round effects, obliging the RBI to hike.The RBI’s next meeting is set for 5–7 October.

Panelist insight: EIU analysts said: “Our core forecast remains one of no monetary tightening over 2026. Inflation will be driven by food and fuel, with the weak rupee adding to imported inflation, along with strong outflows from Indian financial markets, which naturally will tighten liquidity in the financial system. Government bond yields will remain elevated, reflecting concern over fiscal sustainability and a potential further rise in inflation.”

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