Global economic uncertainty to have some bearing on domestic activity amid resilience: RBI

New Delhi, Oct 21 (IANS) The Reserve Bank of India (RBI) on Wednesday said that global economic uncertainty will continue to have some bearing on domestic economic activity and while energy prices and supply chain pressures have continued, their near-term trajectory remains uncertain amid the lingering West Asia conflict. 

Releasing the minutes of the Monetary Policy Committee (MPC) meeting that convened from October 5-7, the Central Bank said the adverse impact is being contained with active diversification of supply sources.

"Deficient southwest monsoon and strong El Nino conditions pose risks to the agriculture sector’s outlook and rural demand, although a healthy buffer of foodgrains and proactive policy interventions by the government are expected to mitigate the impact," according to the MPC minutes.

Furthermore, continuing momentum in services and broadly stable employment conditions are likely to support urban demand. Strong capacity utilisation, robust credit flows, and the government’s thrust on infrastructure are expected to sustain investment activity. While services exports are expected to remain buoyant, bilateral trade agreements should boost merchandise exports, the RBI noted.

RBI Governor Sanjay Malhotra said that amid the turbulent global backdrop, the Indian economy has shown remarkable resilience.

"Growth for the full year 2026-27 is now projected at 7.1 per cent, 40 bps higher than the projection of 6.7 per cent in August. Inflationary pressures are, however, building up. Headline CPI is projected to touch the upper tolerance band in Q3 and remain significantly above 5 per cent in the next two quarters," he mentioned.

While there is limited evidence of demand-side pressures, risks in view of strong growth in monetary and credit aggregates exist, according to the RBI.

Considering all these factors, the MPC unanimously voted to increase the policy repo rate by 25 basis points to 5.50 per cent.

The MPC also decided to change the stance to calibrated tightening. It only signals that, given the current conditions, rate cuts are off the table in the near term, and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook.

The duration and extent of the rate hike cycle would be contingent on the actual growth-inflation developments and outlook, especially that of underlying inflation, the extent of broadening of price pressures and second-round effects of the supply shock, as well as the impact of demand impulses, said the RBI in its MPC minutes.

--IANS

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