THE Reserve Bank of India’s Monetary Policy Committee has, as expected, kept interest rates unchanged at 5.25 per cent. The repo rate was last cut in December from 5.5 per cent. The wait-and-watch approach signals continuity, but the revised growth figures amid the West Asian conflict tell a cautionary tale. The lowering of the GDP forecast to 6.6 per cent from 6.9 per cent projected in April factors in the higher energy prices, supply chain disruptions and a weaker rupee. If the monsoon is uneven or weak, the projections could alter. The consumer price index inflation rate remains under the Central bank’s target level of 4 per cent, but the comfort zone is fast narrowing. A host of underlying inflationary pressures are at play. For an average Indian, tough months lie ahead.
The Indian economy has remained resilient and its fundamentals are stronger than in prior shocks. However, resilience cannot be mistaken as immunity. The impact of rising input costs is being felt by smaller units and across households. Higher fuel costs are being passed on to transportation, logistics and production expenses. At this juncture, ensuring stable business activity for the medium and small industries becomes critical. Several measures have been announced by the RBI with an eye on dollar inflows. In parallel, the Centre has exempted foreign investors from capital gains tax on government bonds. It’s a significant step to make the debt market more attractive for global capital.
The RBI policy underscores its continued vigilance on inflation risks, particularly from crude oil and food prices. At the same time, it is keeping future data-dependent policy options open in case price pressures intensify. The big question now is how well India can navigate the global reality of expensive oil, geopolitical uncertainty and volatile capital flows.
