MUMBAI: Despite noting that headline inflation has been edging up, the Reserve Bank of India-led Monetary Policy Committee (MPC) on Wednesday left the policy repo rate unchanged at 5.25% and retained its neutral policy stance in the third monetary policy review of the current financial year.
RBI Governor Sanjay Malhotra said the decision to keep rates unchanged was based on the assessment that the recent rise in headline inflation does not reflect a broad-based increase in prices. Instead, the uptick has been driven primarily by higher food and fuel prices, largely due to the ongoing conflict in the Middle East.
The decision also comes amid concerns over the agricultural outlook, with the governor noting that crop prospects remain uncertain because of below-normal monsoon rainfall so far and the potential impact of a super El Niño event.
The MPC, however, raised its GDP growth forecast for the current financial year by 10 basis points to 6.7%. It expects the economy to grow by 7% in the first quarter, 6.4% in the second quarter, 6.5% in the third quarter and 6.8% in the fourth quarter.
On the inflation front, despite the upside risks, the MPC lowered its headline inflation projection for the financial year by 10 basis points to 5% from its June forecast. Malhotra said core inflation, excluding food and fuel, remains well under control at 3.5%.
