India's central bank held its policy rate steady this month, but minutes released Wednesday show the rate-setting panel is now watching oil-driven inflation closely enough to consider a hike later this year. Crude near $91 a barrel and a shaky rupee are the main pressure points cited by policymakers.
The Reserve Bank of India's six-member Monetary Policy Committee voted unanimously to hold the repo rate at 5.25% on August 5, keeping its stance at "neutral." But minutes of that meeting, published Wednesday, show members are no longer ruling out a hike if inflation broadens.
Oil shock pushes inflation into view
A surge in oil prices tied to the war in the Middle East is behind the shift. Crude last traded near $91 a barrel, close to a three-week high after retreating in July. India imports nearly 90% of its crude, leaving it exposed to the shock, and the rise has also pressured the rupee.
Still, headline inflation isn't out of hand. Consumer prices rose 4.45% in July, within the RBI's 2-6% tolerance band, though above its 4% medium-term target. RBI Governor Sanjay Malhotra said inflation appears to be normalizing off recent lows but warned that persistent risks from food, fuel and other input costs could still broaden into the wider economy, and that evidence of this materializing may call for tighter policy.
Deputy governor urges patience for now
Deputy Governor Poonam Gupta said further easing is off the table and that a case for a rate hike may emerge during the fiscal year. For now, though, she favors caution: according to the minutes, "the best course of action would be to wait and watch a bit more."
That caution comes even as the RBI adjusted its own forecasts. At the August meeting, it trimmed its inflation forecast for the current fiscal year to 5% from 5.1%, while raising its growth forecast to 6.7%.
External members flag second-round risks
Other panel members focused on how quickly policy could move if conditions worsen. External member Ram Singh said the committee should be able to adjust policy swiftly to protect macroeconomic stability if external shocks or second-round price effects spread. Fellow external member Saugata Bhattacharya said the pace of inflation's expected normalization will need close monitoring before any recalibration of the policy rate. Both external members also pointed to the need to track real, inflation-adjusted interest rates, which affect savings and investment across the economy.
RBI Executive Director Indranil Bhattacharyya struck a similar note, saying he'd rather wait for the risks to show up in actual inflation data before acting, adding that a pause preserves flexibility on timing without necessarily meaning an extended one.
India has held rates steady all year, a contrast with regional peers like Indonesia and the Philippines, which have already tightened policy in response to the same energy-driven price pressures.
Source: Investing.com
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