RBI MPC stays growth focused as RBI flags benign inflation outlook

The MPC unanimously decided to keep the policy repo rate unchanged during the February meeting, while only one member — Ram Singh — preferred changing the stance to accommodative.

“In terms of the overall trajectory, inflation, as projected earlier too, is expected to remain benign,” RBI Governor Sanjay Malhotra said in the minutes.

“From the perspective of monetary policy, it is germane to mention that, while we target headline inflation, the composition of inflation too is important as monetary policy has varying impact on different constituents of inflation,” Malhotra said, adding that excluding precious metals, the inflation outlook is even lower and that underlying inflation continues to be low.

Precious metals contribute about 60–70 basis points to inflation.

Commenting on the recent trade deals with the EU and US, he said these will not only strengthen exports and the current account but also bring in higher investments.

Observing that low inflation continues to be a boon, Deputy Governor Poonam Gupta highlighted that core inflation excluding precious metals remains at 2.3 per cent (December 2025) and is projected to remain benign in the next two quarters (Q1 and Q2 of 2026–27).

“With capacity utilisation rates steady at 74 per cent, there does not seem to be a risk of buoyant economic activity resulting in higher inflation,” she said.

External member Ram Singh, seen as the most dovish by the market, also said there are no signs of overheating in the economy despite the seven-plus per cent growth rate.

“Filtering out the effect of increases in prices of precious metals (60–70 bps), the underlying inflation pressures are expected to remain muted,” Singh said, emphasising that the economy is entering a structural phase where a 7 per cent-plus growth rate and moderate inflation can coexist.

“In view of the reduced volatility underlying headline CPI and the dormancy of the CPI core (excluding gold and silver), it cannot be the end of the current easing cycle,” Singh said, adding that the exact quantum and timing of further rate cuts will depend on incoming data, but a growth-supporting stance is very much consistent with a stable inflation outlook.

Another external member, Nagesh Kumar, also agreed on providing monetary policy support to lift growth.

“With the continued benign inflationary outlook opening up some policy space and with growth rates looking up, the monetary policy may turn its focus to support the acceleration of economic growth rates from around 7% to around 8%, complementing fiscal policy in tune with the Viksit Bharat vision,” Kumar said.

Another external member, Saugata Bhattacharya, however, said risks of further inflationary pressures are accumulating. “Despite this, the good news is that household inflation expectations remain anchored,” he said, adding that the new data series will provide a clearer lens on the growth–inflation balance.

Indranil Bhattacharyya also agreed that release of the new CPI series is expected to provide greater clarity on inflation developments as the weighting diagram of the new index will reflect a more updated consumption basket.

“With headline inflation remaining well below the target throughout 2025–26 and projected at around the target in H1:2026–27, the current policy rate and stance offer scope for remaining growth-supportive without stoking inflation,” Indranil Bhattacharyya said, adding that a neutral stance provides flexibility to respond appropriately to the evolving situation.