Good morning and Namaskar. 2. The West Asia conflict continues to challenge the global economy by disrupting key trade routes and supply chains, amplifying market volatility and depressing business sentiments. Trade uncertainty lingers as US imposed fresh tariffs. The global economic environment has become increasingly unstable. Global growth is projected to soften while inflation forecast is higher for 2026 vis a vis the previous year. Some central banks have tightened policy, while others remain vigilant. Crude oil prices, currencies and financial markets remain volatile, fluctuating in line with the changing intensity and uncertainties of the West Asia conflict. Decisions of the Monetary Policy Committee (MPC) 3. In this global backdrop, the Monetary Policy Committee (MPC) met for its third bi-monthly meeting of the financial year 2026-27 on 3rd, 4th, and 5th of August to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC decided unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25 per cent; consequently, the standing deposit facility (SDF) rate shall remain unchanged at 5.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.50 per cent. The MPC also decided to continue with the neutral stance. 4. I shall now briefly set out the rationale for these decisions. 5. The MPC noted that headline CPI inflation edged up above the target, as expected. The realised inflation for Q1, however, remained marginally lower than projections reflecting limited pass-through of cost pressures. The higher inflation is mostly on account of fuel and food with little signs of generalisation of price pressures so far. Core inflation excluding precious metals continues to be benign. As projected earlier, headline inflation is expected to rise further in the near term and peak in Q3:2026-27, primarily due to food and fuel, before moderating thereafter. The underlying inflation, reflected by core inflation excluding precious metals, which has been benign for some time, is set to align with core inflation towards the end of the financial year. 6. Growth continues to be supported by resilient domestic demand, sustained expansion in manufacturing and services activity, and robust exports, reaffirming India’s position as the world's fastest-growing major economy. 7. To sum up, even though headline inflation is projected to increase, it is primarily on account of supply side pressures caused by food and fuel; it is not getting broad-based; core inflation remains moderate and is expected to decline after peaking in Q3. Growth, albeit resilient, is expected to be lower in 2026-27. The outlook, however, is hazy because of the uncertainties regarding south-west monsoon, El Niño, geopolitics and global trade policy. There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action. Any such action would also have to consider the need for recalibration of policy rates in line with the evolving growth-inflation dynamics, especially the normalisation of the underlying inflation from its benign levels seen hitherto. 8. Considering all these factors, the MPC voted to keep the policy rate unchanged. The MPC also decided to retain the neutral stance to respond appropriately to macroeconomic developments. The MPC underscored that it will maintain a close vigil and remain resolute in its commitment to align inflation with the target. Assessment of Growth and Inflation Growth 9. The supply-side pressures caused by the West Asia conflict have eased somewhat since June 2026, leading to withdrawal of temporary measures undertaken by the government and normalisation of key input supplies.1 However, the re-escalation of the conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty about supply chains. 10. Amidst persistent global uncertainty, domestic economic activity has exhibited resilience as reflected by the high frequency indicators available for Q1:2026-27. Early results of corporates for Q1 indicate healthy performance in the manufacturing sector2. This is also corroborated by an expansionary PMI.3 Services activity too maintained its momentum in the wake of strong domestic demand.4 Private consumption continued to be driven by buoyant discretionary spending,5 while investment activity remains steady on the back of robust government spending on infrastructure and construction.6 Merchandise exports rebounded with double digit growth while services exports growth sustained its momentum.7 Overall, the India economy performed better than expected in Q1. 11. Looking ahead, the prospects for agriculture are clouded by deficient and uneven southwest monsoon8 amidst El Niño conditions. The reservoir levels, which remain close to normal, bode well.9 The government’s initiatives for crop diversification including short duration as well as climate-resilient crops, and water harvesting and conservation, inter alia are expected to mitigate the impact of deficient rainfall. Although manufacturing sector may face cost pressures, the growing diversification of global supply chains should help mitigate the impact. Services sector is expected to maintain its buoyancy on the back of strong domestic demand.10 On the demand-side, impact of weak monsoon on rural consumption may be partly offset by suppportive allied sector activities and various government schemes. Buoyancy in services sector and steady employment conditions should suppport urban consumption. Strong capacity utilisation, robust credit flow11 and the government’s continued thrust on infrastructure are expected to sustain investment activity. Net external demand is expected to derive strength from bilateral trade agreements and market diversification. Renewed tensions in West Asia which are disruptive of global supply chains, volatility in international fiancial markets, and weather-related shocks, however, pose downside risks to growth. Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 6.7 per cent, with Q1 at 7.0 per cent; Q2 at 6.4 per cent; Q3 at 6.5 per cent; and Q4 at 6.8 per cent. The risks are evenly balanced. Inflation 12. While CPI inflation increased to 4.4 per cent in June 2026 after remaining below the target for 16 consecutive months, it turned out to be lower by 30 basis points (bps) than what was earlier projected12 for Q1:2026-27. The increase in June was primarily due to higher food13, fuel14 and fuel-induced inflation in select categories such as restaurant services.15 Notwithstanding the pressure from higher input costs, core (CPI excluding food and fuel) inflation remained unchanged at 3.9 per cent during May-June.16 Core inflation, excluding precious metals, was even lower at 2.3-2.5 per cent during this period. 13. Going forward, El Niño’s impact on temporal and spatial rainfall distribution continues to remain a major risk17, although proactive supply management and adequate stock of foodgrains should provide comfort.18 Global oil prices have remained highly volatile with sharp two-way movements triggered by geopolitical developments, blurring the near-term outlook.19 Although generalised inflation pressures continue to remain modest so far, the risks of second-round impact of higher food, fuel and other input prices translating to broad-based inflation persist. 14. After considering all factors, CPI inflation for 2026-27 is projected to be 5.0 per cent with Q2 at 4.7 per cent; Q3 at 5.9 per cent; and Q4 at 5.5 per cent. Inflation for Q1:2027-28 is projected at 5.3 per cent with risks being evenly balanced. Core inflation is projected at 4.3 per cent for 2026-27. Core inflation excluding precious metals is projected to be lower, though it is likely to align with core inflation from Q4. Liquidity and Financial Market Conditions 15. System liquidity, as measured by the net position under the LAF, stood at an average daily surplus of ₹1.0 lakh crore since the last MPC meeting in June 2026.20 Going ahead, the usual return of currency during the monsoon season, drawdown of government cash balances and our special measures to attract capital inflows are expected to aid banking system liquidity in the near-term. 16. Since the June meeting, the weighted average call rate traded within the policy corridor averaging 5.31 per cent. Short-term money market rates, especially rates of commercial papers and certificates of deposit, moderated in July.21 G-Sec yields, buoyed by measures undertaken by the Government and the Reserve Bank to attract foreign capital into Indian debt markets, eased across maturities during June and July. Transmission in the credit market, however, moderated during May-June with hardening of deposit and lending rates.22 Nevertheless, credit growth continues to remain robust23 and broad-based24 across sectors. 17. Through its conduct of two-way operations, the Reserve Bank will proactively ensure sufficient liquidity in the banking system, guided by the objective of aligning the weighted average call rate (WACR) to the policy repo rate. Financial Stability 18. The system-level financial parameters related to capital adequacy, liquidity, asset quality and profitability of Scheduled Commercial Banks (SCBs) continue to remain healthy, although there is some moderation in Net Interest Margin (NIM) as compared to last year.25 Similarly, the system-level parameters of NBFCs too are sound, with adequate capital position, improved GNPA ratios and higher profitability.26 External Sector 19. Let me now turn to the external sector. Despite the challenging and turbulent global macroeconomic environment, India’s current account deficit in 2025-26 remained modest and much below the levels considered to be sustainable for emerging markets.27 During April-May this year, the current account recorded a surplus of US$ 2.8 billion, primarily led by robust surplus in services trade28 and strong remittance receipts29. In Q1:2026-27, India’s merchandise trade deficit widened to US$ 86.6 billion from US$ 68.7 billion in Q1:2025-26, mainly driven by imports of crude oil, electronic goods and gold.30 Going forward, moderation in global trade growth31, surge in energy prices and persistent trade policy uncertainties pose upside risks to India’s current account deficit in 2026-27. On the other hand, implementation of the India-UK trade deal along with other recent agreements with major trading partners, healthy services exports and buoyant inward remittances are expected to mitigate these risks. 20. On the external financing front, gross foreign direct investment (FDI) inflows were buoyant at US$ 30.7 billion during April-June 2026, higher than US$ 26.7billion a year ago, underscoring the continued interest of global investors in India32. Net FDI inflows, driven by higher gross inflows and a slowdown in the growth of outward FDI, also increased during the period33. Moreover, foreign portfolio investment (FPI) to India has seen a turnaround during June-July 2026 with net inflows of US$ 7.1 billion, primarily driven by the debt segment, after registering net outflows during April-May 2026.34 Capital flow measures undertaken in June have supported inflows35; as a result, the balance of payments is expected to register a healthy surplus this year. 21. India’s foreign exchange reserves36 continue to be adequate in terms of the standard metrics of reserve adequacy with import cover of over 10 months and external debt cover of 90.8 per cent. 22. As for the exchange rate, we will continue with our policy of it being determined by market forces, while curbing excessive volatility, checking speculative behaviour and preventing disorderly movements to ensure that it is not out of sync with fundamentals or disruptive of economic activity. For this purpose, we have a broad range of effective regulatory and market-based instruments. Additional Measures 23. Before I conclude, I have a few additional measures to announce. Cooperative sector 24. I propose two measures to further strengthen the cooperative sector: -
One, on the basis of the feedback received on the discussion paper on licensing of UCBs, we are issuing draft guidelines for resuming licensing of UCBs; and -
two, in light of the experience gained and the developments since 2008 when the Credit Monitoring Arrangement for Rural Cooperative Banks was last revised, we are issuing draft directions after undertaking a comprehensive review of the arrangement. Interest rate on advances 25. In order to enhance transparency in lending rates and strengthen consumer protection, it is proposed to harmonise and standardise the regulatory framework on interest rates on advances for all regulated entities. Concluding Remarks 26. To conclude, global economic conditions and sentiments continue to remain hostage to the rapidly oscillating developments, both in scale and intensity, of the West Asia conflict. While these have impacted the domestic growth-inflation outlook adversely, the stronger macroeconomic fundamentals of the Indian economy are helping navigate this global shock resolutely. As alluded to in my last Statement, this presents an opportunity to accelerate measures to enhance our resilience to withstand such shocks. We shall continue to implement policies that further fortify our economy. Whether it is facilitating sustainable growth or promoting consumer protection; whether it is preserving stability of prices, the financial system or the currency, we will do whatever it takes to ensure the same. 27. Thank you. Namaskar and Jai Hind. (Brij Raj)
Chief General Manager Press Release: 2026-2027/810
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