RBI Governor Sanjay Malhotra flags inflation risks; says rate recalibration needs greater clarity, MPC Minutes show

Reserve Bank of India Governor Sanjay Malhotra said he would prefer greater clarity on the persistence and trajectory of inflation before considering any recalibration of the policy rate, while warning that a broad-based rise in food, fuel and input prices could warrant monetary tightening.

Malhotra made the remarks as the six-member Monetary Policy Committee (MPC) voted earlier this month to keep the benchmark repo rate unchanged for a fourth consecutive meeting, according to the minutes of the August meeting released on Wednesday.

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"...I would prefer to wait for more certainty to emerge on the inflation trajectory in terms of the persistence of realised prints at these or higher levels, the forecast and the likely levels to which inflation may normalise and settle, for any recalibration of the policy rate," he said.

The Governor said monetary policy would need to respond to a supply-side shock if it began to result in a generalisation of inflation, de-anchoring of inflation expectations or persistent inflation. While such risks remained, evidence of them materialising was limited so far, he said.

Malhotra, however, stressed that the inflation outlook warranted close monitoring, particularly amid risks that higher food, fuel and other input costs could spill over into broader price pressures.

"Any evidence of these risks materialising may need policy tightening," he opined.

Inflation risks remain in focus

The MPC's decision to hold rates came against the backdrop of heightened global uncertainty, disruptions to supply chains stemming from the conflict in West Asia and an erratic monsoon.

Despite these headwinds, Malhotra said the Indian economy had performed better than expected in the first quarter of 2026-27.

The Governor's comments indicate that the central bank is seeking further evidence on the durability of inflation trends before making any change to the policy stance, with both realised inflation readings and the outlook for price pressures remaining important considerations.

Deputy Governor and MPC member Poonam Gupta also backed a wait-and-watch approach, citing continuing uncertainty from global developments and weather-related risks.

Also read: RBI's rate, GDP and inflation verdicts also come with some stark warnings

"This would allow for the weather-related uncertainties to fully settle; to ascertain how far the supply-side inflation is getting entrenched; and to get some more clarity on the global front," she said.

Gupta said waiting for more information would help the MPC assess whether supply-side inflationary pressures were becoming entrenched and provide greater clarity on the external environment.

The MPC's latest decision thus reflected a preference to monitor incoming inflation and growth data before recalibrating the policy rate, with the Governor flagging the possibility of tightening if emerging price risks begin to broaden or affect inflation expectations.