3 Day MPC Meet Begins Today, Status Quo On Rates Expected

Mumbai: The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kicked off its three-day meeting on Monday, with the central bank widely expected to hold rates and adopt a cautious tone amid ongoing war-related uncertainties, while reiterating a data-dependent approach for future policy decisions. The MPC decision will be announced on August 5.

Prachi Kele, lead economist at PL Capital said, “A favourable response to FCNR(B) measures, improving FPI inflows as the AI- and semiconductor-led equity rally cools amid improved kharif sowing support the thesis for a pause. Food inflation is likely to remain contained in FY27 as El Niño risks recede and monsoon conditions remain favourable, while growth risks stay broadly balanced.”

The stability in India’s 10-year government bond yield at around 6.7 per cent also indicates that bond traders are not pricing in an immediate change in interest rates.

Despite a recent drop in the price of oil on account of a pause in the strikes between US and Iran, oil prices have remained volatile. In the June meeting, RBI revised its inflation forecasts higher while Q1FY27 headline inflation averaged 3.9 per cent, lower than RBI’s forecast of 4.2 per cent.

Says Indranil Pan, chief economist at Yes Bank, “We see MPC less worried on West Asia impact on growth, given resilient advance indicator trends, while keeping a close watch on the hit to agricultural output out of deficient rainfall.”

“Worries may be expressed in the inflation dynamics as newspaper reports indicate manufacturers readying to pass on the higher input costs to end users. With a multitude of evolving factors, it remains prudent for the RBI to provide a status quo policy in August, allowing it time to more closely assess the shifting balance between inflation risks and growth momentum,” added Pan.

Meanwhile, the Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits have witnessed a sharp rise after the RBI introduced a special US Dollar-Rupee forex swap facility. As per the data shared in the Lok Sabha by the Ministry of Finance, the outstanding FCNR(B) deposits increased from $32.56 billion on June 5, 2026, to $60.55 billion, registering a surge of 86 percent on July 30, 2026. In June, the Reserve Bank had kept its key policy rate unchanged at 5.25 per cent and adopted a cautious wait-and-watch stance as policymakers assessed the fallout of the West Asia conflict. Moreover, since the Middle East conflict, several central banks, including those in Europe, Australia, Indonesia, the Philippines, Singapore, South Korea and South Africa, have raised benchmark interest rates in response to higher inflation risks. However, the US Federal Reserve and the Bank of Japan have kept rates unchanged.