(Image source from: Deccanchronicle.com)

In response to what the market anticipated, the Reserve Bank of India decided to keep the repo rate steady at 5.25 percent on Friday. This decision was made unanimously after a two-day meeting of the six-member monetary policy committee. At the beginning of his speech, RBI Governor Sanjay Malhotra emphasized that India is confident in its ability to handle geopolitical issues, noting that the global economic outlook is uncertain because of the ongoing conflict in Iran. Additionally, the RBI governor remarked that a weak monsoon could negatively affect both growth and inflation but reassured that "sufficient stocks provide assurance. "

Key Highlights:

The GDP forecast for FY25 remains at 7.6 percent.
The MSF and bank rate are set at 5.5%.
Core inflation has stayed steady at 3.7% during March-April.
CPI inflation for the year 2026-27 is estimated at 5.1%.
Foreign Direct Investments indicate ongoing interest from international investors in India.
Even with Foreign Institutional Investor withdrawals from Indian stocks, India’s foreign exchange reserves are in good shape.
Crude oil prices (Indian Basket) have averaged around US$ 110 per barrel over the past two months.
It appears that average crude oil prices this year will be much higher than what was expected during the last policy meeting.
The gradual increase in domestic petrol and diesel prices due to high global crude oil prices began in May.
Considering these factors, CPI inflation for this year is now estimated at 5.1%, which is 50 basis points higher than earlier forecasts.

RBI Governor Sanjay Malhotra stated, "The global situation has worsened since our last meeting, with ongoing conflict amidst a fragile peace. The negative effects of continued supply chain disruptions and high energy prices are seen in the slowdown of growth and the rise in inflation estimates as discussed. He further mentioned, "CPI inflation is still below the target despite global disturbances because the impact on domestic prices has been limited. While the initial projections suggest that overall inflation will rise towards the upper tolerance limit in the third quarter of 2026-27, the effects of supply disruptions are likely to diminish from the fourth quarter onward. The underlying inflation factors remain manageable right now. However, there is a real chance for inflation to spread through second-round effects on expectations and wages, which needs close attention. Additionally, the outlook is further complicated by below-normal forecasts for the southwest monsoon and risks associated with El Nino. "

The governor added, "Regarding growth, high energy prices combined with global supply issues are adversely affecting economic activities. While domestic demand remains strong and both manufacturing and service sectors are growing, there are early signs of a slowdown in certain areas, as indicated by various activity indicators".