Kathmandu— On Wednesday, the Reserve Bank of India's Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 5.25%, while retaining its 'neutral' policy stance due to ongoing uncertainties surrounding the southwest monsoon season and global geopolitics. The central bank also lowered its inflation forecast for FY27 to 5% from a previous estimate of 5.1%. Governor Sanjay Malhotra highlighted supply-side pressures, particularly in food and fuel prices, while noting that core inflation remains moderate.

Inflation Projections Adjusted

The RBI has revised its Consumer Price Index (CPI) inflation forecast for the current financial year to 5%, a reduction of 10 basis points from earlier estimates. Quarterly projections indicate an increase in Q3, with rates at 5.3% in Q1, 4.7% in Q2, 5.9% in Q3, and 5.5% in Q4. Core inflation for the year is projected to be 4.3%, reflecting a moderation despite supply-side pressures.

Monsoon and Geopolitical Risks

Governor Malhotra emphasized that the impact of El Nino on monsoon patterns remains uncertain, posing significant risks to agricultural output and inflation. He also noted that global oil prices have been volatile due to geopolitical developments, adding another layer of uncertainty to the near-term outlook.

Liquidity Conditions

The Governor stated that liquidity conditions are expected to improve in the coming months due to seasonal factors and government measures aimed at attracting capital inflows. He observed a moderation in short-term money market rates, particularly in commercial papers and certificates of deposit during July.

Agricultural Outlook

Despite deficient and uneven southwest monsoon rainfall under El Nino conditions, the RBI governor expressed optimism about government initiatives such as crop diversification and promotion of short-duration crops. These measures are expected to mitigate adverse impacts on agriculture. However, manufacturing sectors may face cost pressures due to global supply chain disruptions.

(With inputs from ANI)

Originally published on abcnews.com.np.