Daijiworld Media Network – Mumbai

Mumbai, Aug 19: The Reserve Bank of India (RBI) has kept its policy repo rate unchanged at 5.25%, but minutes of its August meeting indicate that a rate hike could be considered if rising food, fuel and input costs begin to push up broader inflation.

The six-member Monetary Policy Committee unanimously decided to maintain the repo rate at 5.25% at its August 5 meeting and retained its policy stance at “neutral”. However, policymakers stressed the need to closely monitor inflationary pressures arising from higher global energy prices and other supply-side risks.

RBI Governor Sanjay Malhotra said headline inflation was showing signs of normalising from the low levels seen earlier. He warned that higher food, fuel and other input costs could potentially translate into broader inflation and affect inflation expectations. Any evidence of such risks materialising, he said, could require monetary policy tightening.

Deputy Governor Poonam Gupta said there was currently little scope for further easing and that a case for a rate hike could emerge during the financial year. However, she said the central bank should wait and assess developments amid uncertainty surrounding global conditions and weather risks.

India's retail inflation stood at 4.45% in July, remaining within the RBI's 2-6% tolerance band, while the central bank's medium-term inflation target is 4%.

Several members of the rate-setting panel highlighted concerns over possible second-round effects of supply-side inflation. External member Ram Singh said monetary policy would need to respond swiftly if external shocks intensified or price pressures spread more widely across the economy.

The rise in crude oil prices has added to concerns, particularly as India imports nearly 90% of its crude oil requirements. Oil prices were around $91 a barrel at the time of the report, close to their highest level in three weeks.

Another external member, Saugata Bhattacharya, said the expected normalisation of underlying inflation needed close monitoring of growth and inflation dynamics before deciding when to recalibrate the policy rate.

RBI Executive Director Indranil Bhattacharyya also pointed to risks from uneven rainfall and volatile global energy prices, but said he preferred to wait for such risks to appear clearly in inflation data before taking action. He stressed that the current pause preserved flexibility and did not necessarily mean the RBI would maintain rates unchanged for an extended period.

The RBI has retained policy rates at the same level so far this year, even as some other Asian central banks have tightened policy in response to higher energy costs and currency volatility linked to global conflicts.

At its August policy meeting, the RBI lowered its forecast for average inflation in the current financial year to 5% from 5.1%, while raising its economic growth projection to 6.7%.