The Reserve Bank-led monetary policy panel believes that the economy is in a good shape and that the interest rate can remain low for long if the ceasefire holds or the war ends conclusively.
Earlier in the day, governor Sanjay Malhotra said the MPC, which got its third five-year flexible inflation targeting mandate last week, has decided to keep the repo rate unchanged at 5.25% and also maintained policy stance neutral after reconsidering to some extent the impact of the ceasefire announcement by the three warring parties in West Asia in the wee hours of Wednesday.
Given the massive increase in crude prices, which had spiked more than 55% last month, and its impact on inflation and the overall growth, the MPC has revised down growth forecast for the current fiscal to 6.9% down (from 7.4% FY26). This is the first forecast by the RBI after the new GDP series with fiscal 2023 as the base year was announced in February.
Of the 6.9% growth for FY27, the MPC sees Q1 printing in at 6.8% and Q2 at 6.9%.
Similarly, in its first inflation forecast under the new series, the RBI sees price index moving up to 4.6% for the full fiscal 2027, with Q1 at 4.4% compared to 4%, Q2 at 4% compared to 4.2%, Q3 at 5.2%; and Q4 at 4.7% considering crude averages at $85 a barrel.
When pointed to the last post-policy presser wherein Malhotra had said the lower rate could stay for longer and given the ceasefire now in place, how confident is he about the rates remaining at the current level or not lower, the governor said: “We are in a neutral stance now. Possibility of either ways cannot be ruled out though. So it is quite possible that these low rates continue for a longer time.”
He said that the economy is structurally very strong, very resilient, and robust. Despite the shocks, we are predicting 6.9% real growth, if we look other economies and relative to them, we are even better,” the governor said. In a significant change of track, the MPC has decided to focus on core inflation too going forward. One of the rationales for this pivot, Malhotra said, is that under the new CPI series with 2024 base year, headline inflation rose to 3.2% in February from 2.7% in January.
“The uptick was primarily driven by unfavourable base effects even as the momentum remained muted. While food inflation increased in February, core (excluding food and fuel) inflation remained unchanged. Excluding precious metals, core inflation remained moderate at 2.1% in January and February, suggesting subdued underlying inflation pressures,” he said.