The Monetary Policy Committee’s (MPC’s) unanimous decision to keep the repo rate and neutral stance unchanged was in line with ICRA’s expectations, amid limited evidence of generalisation of inflationary pressures, pickup in monsoon rainfall in July 2026, and benign prints for core-CPI inflation. Additionally, the tone of the policy document was relatively benign, in contrast with the hawkish commentary seen in June 2026, suggesting that monetary tightening is not imminent in the immediate term. While the FY2027 GDP growth forecast was raised by 10 bps to 6.7%, that for CPI inflation was pared by 10 bps to 5.0%; these estimates seem to be appropriate for an average crude oil price of $80-85/barrel and a moderate rainfall deficit. While ICRA believes that immediate policy tightening is unlikely, elevated inflation projections for Q3 FY2027 through Q1 FY2028, and commentary around the need to consider the normalisation of the underlying inflation from its benign levels (+2.1% in FY2026), suggests that the next move on rates is going to be a hike, which is likely to materialise in December 2026.

• MPC maintained status quo in August 2026: Limited evidence on the generalisation of inflationary pressures, benign core inflation excluding precious metals, and the recovery in Southwest Monsoon rainfall in July 2026 following the large deficit in June 2026, supported the Committee’s decision to hold rates steady at the current juncture. These factors also supported a relatively neutral tone in the policy document, from a hawkish one in June 2026.
• FY2027 growth-inflation forecasts tweaked mildly: The MPC marginally raised the FY2027 GDP growth forecast by 10 bps to 6.7%, in line with ICRA’s own estimate for the fiscal, amid a sharp upward revision in the estimate for Q1 (by 40 bps to +7.0%). However, the CPI inflation projection for FY2027 was pared by 10 bps to 5.0% (ICRA est.: +5.0%), amid a lower-than-forecasted reading for Q1, and a 40-bps cut in the Q2 print to 4.7%.