RBI governor Sanjay Malhotra has argued for a cautious “wait-and-watch” approach on interest rates despite inflation projections for FY27 moving closer to the central bank’s upper tolerance limit of 6 per cent, amid heightened uncertainty around growth and price trends.
His assessment broadly aligned with the views of the other five members of the Monetary Policy Committee (MPC), which voted unanimously to keep the policy repo rate unchanged earlier this month. The committee, however, flagged the possibility that major advanced economy central banks could pivot towards tighter monetary policy if inflationary pressures persist.
In the minutes of the meeting, held before the US-Iran accord to end the conflict, Malhotra noted that headline inflation is projected at 5.1 per cent in FY27 and could rise to 5.9 per cent in Q3, close to the RBI’s upper tolerance threshold.
However, he argued that considerable uncertainty surrounds these projections. Risks stem from geopolitical tensions, potential supply-chain disruptions, the intensity and geographical spread of the monsoon, and their impact on food, energy and commodity prices.
The governor also pointed out that underlying inflationary pressures remain relatively contained. Core inflation is projected at 4.7 per cent in FY27, while core inflation excluding precious metals remains below the RBI’s target level, suggesting limited broad-based price pressures.
According to Malhotra, much of the upward revision in inflation forecasts since the April policy review has been driven by food and fuel prices, which are largely supply-side factors and may not necessarily become generalised across the economy.
He added that current inflation readings also justify caution. Headline inflation remained within the RBI’s target range in April, while core inflation stayed subdued, indicating weak underlying demand-driven pressures.