MUMBAI: RBI is expected to leave interest rates unchanged at its monetary policy committee meeting on August 5 as economists see little case for an immediate policy move despite rising inflation risks, with rupee being stable, resilient domestic growth and uncertainty over crude oil prices shaping expectations.High frequency indicators, including industrial output and GST collections, point to resilient domestic activity. The main uncertainty lies abroad. Volatility in West Asia and its effect on crude oil prices remain the chief risk, while concerns over El Nino have receded, reducing the urgency for further monetary easing.According to Soumya Kanti Ghosh, chief economist, SBI group, “With CPI inflation likely to remain above 5% for the next two quarters and likely average of 5% in FY27, we believe RBI will maintain status quo”. He said that while the MPC may keep rates unchanged, the current backdrop has made soft language costlier. Oil volatility, rupee pressure, caution over external flows, and higher inflation projections make an explicitly dovish message less likely.Ghosh expects Q1 FY27 real GDP growth to outperform RBI’s earlier projection of 6.6% and come in at around 7.0%. He expects CPI inflation for Q1 at 3.9%, followed by 5.2% in Q2, 5.6% in Q3, and 5.0% in Q4, taking the FY27 average to around 5%.According to Ghosh, “A rate hold can still move markets if the statement shifts the balance between growth comfort and inflation / FX vigilance”.He said investors should watch RBI’s intervention in the short end of the forward book, where the short end forward position has reduced by $13 billion, alongside cumulative foreign inflows of around $35 billion through FCNR(B) deposits and other channels. He also pointed to the positive Indian Ocean Dipole, which stood at +0.44 degrees Celsius on July 26. The difference in sea surface temperatures between the western and eastern parts of the Indian Ocean could support rainfall and offset initial monsoon shortfalls.According to Santanu Sengupta and Arjun Varma of Goldman Sachs, the rupee is expected to stabilise following RBI measures to attract foreign capital. “With the INR having broadly stabilised following the RBI’s recent FX measures, we see limited need for the MPC to turn more hawkish near term”. They expect RBI to lower its inflation forecast modestly as crude oil prices remain below the $95 a barrel benchmark used at the June policy meeting.
