RBI Governor Sanjay Malhotra’s speech on Wednesday after the MPC meeting was sober and realistic | Photo Credit: DHIRAJ SINGH

In a world where uncertainty is the only certainty, and with the ceasefire looking somewhat shaky, the Monetary Policy Committee got its decision and tonality right. Its decision on Wednesday to keep rates unchanged was accompanied by a matter-of-fact assessment of the prevailing risks. The MPC’s stocktaking comes on the heels of the Finance Ministry projecting various scenarios of growth, inflation, current account deficit and fiscal deficits, for different levels of global crude prices. Indeed, by keeping rates unchanged, the MPC has rightly sought to meet the dual goal of containing inflation without hurting growth.

It was just as well that Reserve Bank of India Governor Sanjay Malhotra’s speech was sober and realistic, rather than sanguine or gloomy with respect to the domestic economy ; he did, however, try to talk up the external account at a time of fickle flows. The MPC expects CPI inflation to be 20 basis points higher in the second quarter of FY27, compared to the projections made in the February policy, and the third quarter CPI at 5.2 per cent due to the disruptions caused by the war. There is an upside risk to these numbers if the kharif output is impacted due to poor monsoon — something that MPC does not appear to acknowledge. But a rate hike is unlikely to rein in inflation caused by supply disruption. It would hurt growth, which has been pegged 10 and 30 basis points lower for the first and second quarters of FY27 respectively by the MPC. For full year FY27, growth is projected at 6.9 per cent, 60 basis points below the growth of 7.6 per cent for FY26. Indeed, the Governor accepts the possibility of a supply shock crimping demand.

The relief provided to banks to improve their capital availability will help them address any additional stress in their loan book due to the war. The proposal to de-link the inclusion of quarterly profits in the CRAR (capital to risk weighted assets ratio) from the deviation observed in non-performing assets in previous quarters, will enable banks to improve their capital ratio and leverage. The other proposal to dispense with investment fluctuation reserve is also a right move as most banks are already recognising the investment gains or losses in their accounts on account of higher market rates.

The RBI has desisted from announcing overt steps to support the rupee, which has been among the worst performing Asian currencies — and rightly so. The move to limit net open forex position of banks in onshore markets from April 10 has resulted in the rupee halting its slide and strengthening over 2 per cent from its all-time low. With foreign portfolio investors continuing to be net sellers in equity and bond markets and remittances from West Asia at risk, the external account could face further pressure in the days ahead, if the war continues. The RBI would have to be data driven and nimble with its options, in times when little can be anticipated — on output, exports, remittances and capital flows.

Published on April 10, 2026