RBI POLICY AMIDST GEOPOLITICAL TENSIONS

RBI POLICY AMIDST GEOPOLITICAL TENSIONS

The RBI policy presented by the RBI on April 08, 2026 kept rates on hold at 5.25%, while also keeping the stance of the policy at “Neutral.” However, the policy did cut the FY27 GDP growth forecast by 50 bps to 6.9% and raised inflation forecast by 40 bps to 4.6%. This is where the projection get interesting.

In FY26, the GDP deflator was 0.5%, so the nominal GDP growth was around 8.3%. However, GDP deflator in FY27 is pegged above 3.5%. Even at real GDP growth of 6.9%, the nominal GDP growth would be in double digits. That is positive. RBI had a case for cutting rates and also for raising rates, but opted to maintain status quo and let the data do the talking.

RECAP OF THE RBI APRIL MONETARY POLICY STATEMENT

Amidst the global uncertainty, RBI MPC decided to wait and watch till a clearer picture emerged on monsoons. Hence, the repo rate was held at 5.25%. This also holds the SDF rate at 5.00% and the MSF / Bank Rate at 5.50%. Along expected lines, RBI raised the inflation target for FY27 by 40 bps, while the real GDP growth estimate was cut by 50 bps.

After all, the supply chain constraints caused by the US-Iran war and higher crude and gas prices were likely to compress industrial output. Also, the El Nino effect is expected to show up this year; with IMD projecting deficit rainfall at 92% of long period average (LPA). Here are the key points made by the 6 members of the MPC in the policy meet.

NAGESH KUMAR CAUTIONS ON WAR AND EL NINO

Dr Nagesh Kumar highlighted the war in Middle East and the possible El Nino effect as two major risk factors. While the spike in inflation did make a case for raising rates, the low levels of confidence among industry players would have been adversely impacted by a rate hike. Crude is being pegged at a higher normal of $85/bbl for FY27, so the oil pressure appears more structural in nature.

The Vote: Nagesh Kumar was of the view that the current uncertainty called for a deeper understanding of how the situation evolves. Hence “Wait and Watch” would be a good choice. Nagesh Kumar voted to hold the policy stance as “Neutral.”

SAUGATA BHATTACHARYA POINTS TO RISK OF STRUCTURAL INFLATION

Saugata Bhattacharya was more concerned about the cumulative impact of inflation, especially with the new economic data series with base revisions to be released soon. He underlined that the supply chains had been badly disrupted and even after the war was over, it would take some time for the structural issues to be resolved. Inflation risks were less on the demand and more on the supply side, due to war related disruption. Hence, using rate hikes to contain inflation must only be used sparingly.

The Vote: Bhattacharya has underlined the risk of policy mistakes at this juncture; and any decision to affirmatively cut or hike rates could easily backfire. He voted to hold rates at 5.25% and to keep the monetary policy stance at “Neutral.”

RAM SINGH WARNS OF GOLDILOCKS STUPOR

Prof Ram Singh has cautioned not to be naïve to believe the Goldilocks effect in the current scenario. The situation is volatile and it may not take much time for the Goldilocks Effect to transform into Stagflation. He underlined that while the direction of the impact was evident, the quantum of impact was the X-factor. It depends on how long it lasts. Policy experiments must be ideally avoided. He suggests a dovish pause, without changing the core context.

The Vote: Ram Singh believes it is best for monetary policy to be data driven; and the data is pointing both ways. Prof Ram Singh changed his vote on stance from Accommodative to Neutral, in sync with the need to be more data driven.

INDRANIL BHATTACHARYA WARNS OF MULTIPLE MACRO CONFLICTS

According to Dr Indranil Bhattacharya, there are multiple macro conflicts as seen today. While domestic market still drives Indian economy, impact of global risks get transmitted to India via oil, gas, and gold. Bhattacharya pointed to the risk of inflation expectations getting unanchored and it would be best for the RBI MPC to act as observers for now.

The Vote: Indranil Bhattacharya felt the data conflicts could be best handled by maintaining status quo on rates and stance. Accordingly, Bhattacharya voted to hold repo rates at 5.25% and to keep the stance at “Neutral.”

POONAM GUPTA SAYS, INFLATION STILL CLOSE TO TARGET

According to Poonam Gupta, the capacity slack and robust domestic demand have kept Indian companies going. Also, inflation continues to be benign if gold and fuel are stripped out. Hence, it may be an external shock, but not a major crisis for the Indian economy.

The Vote: According to Poonam Gupta, since inflation is supply-push; rate hikes may not help in the short term. Hence, the RBI should ideally use the time up to the onset of monsoons to arrive at a clearer picture on sustainable growth and structural inflation.

RBI GOVERNOR HIGHLIGHTS CONSUMPTION AND INVESTMENT DEMAND

Since it was a unanimous vote, the RBI governor vote was not required. However, his views are critical. According to Malhotra, domestic consumption and investment demand have still not been dented. That strength can handle inflation shocks for some more time.

While fuel inflation was a concern, food inflation looked high due to a low base. We still do not have adequate data on the impact on core inflation. RBI Governor also felt it was the best choice to hold repo rates at 5.25% and the stance of the policy at “Neutral.”

The April 2026 Monetary Policy shows a shift from the optimism of February to concerns about an external shock. While India has its buffers, the RBI MPC believes that it is best to bide time and wait for data signals to manifest.