RBI Governor: Watchful of inflation trajectory amid fuel price, monsoon risks

Reserve Bank of India Governor Sanjay Malhotra emphasized the need for vigilance regarding inflation, especially with upcoming fuel price adjustments.

"We need to be watchful of the inflation trajectory. Going forward, revision in retail prices of petrol and diesel in May would lead to higher fuel inflation in the coming months," Malhotra stated in the minutes of the Monetary Policy Committee meeting. He highlighted that despite a favorable near-term outlook for food prices, the risks associated with El Nino have increased the possibility of a poor monsoon.

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We need to be watchful of the inflation trajectory. Going forward, revision in retail prices of petrol and diesel in May would lead to higher fuel inflation in the coming months.

The Monetary Policy Committee decided to maintain the status quo, keeping the repo rate unchanged at 5.25% during its June 5 policy announcement. The Governor expressed a preference for a "wait and watch" approach, voting for the current policy rate and a neutral stance. His policy decisions are influenced by the evolving geopolitical situation in West Asia and the potential impact of an inadequate monsoon.

For the fiscal year 2026-27, the MPC revised its inflation projection upward to 5.1%, with a peak forecast of 5.9% in the third quarter. Economic growth for the current fiscal year was slightly reduced to 6.6% from the earlier 6.9% projection. Malhotra pointed out uncertainties in these projections, citing the West Asia conflict and monsoon intensity as key factors that could influence future inflation and growth. He also noted that while headline inflation is projected to be high, core inflation is expected at 4.7%, falling further if metals are excluded. He suggested that the projected increase in headline inflation is largely driven by supply-side factors in food and fuel and may not necessarily lead to generalized price increases.

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I would prefer to go with a "wait and watch" approach.