Comment on MPC by Sumit Singhania, Head of Research- Bajaj Broking

The Reserve Bank of India has adopted a pragmatic "wait-and-watch" strategy, holding the repo rate unchanged at 5.25% amidst a highly turbulent global backdrop. While domestic demand, private consumption, and services exports have exhibited strong resilience, intensifying global conflicts, supply disruptions, and elevated energy prices are beginning to weigh on economic activity. Compounded by a sub-normal monsoon forecast and El Niño risks, the RBI chief noted considerable risks to both growth and inflation, choosing to remain strictly data-dependent until greater clarity emerges. Reflecting these headwinds, the central bank downgraded its FY27 Real GDP growth projection to 6.6% (down from 6.9%) and raised its FY27 inflation outlook to 5.1%. Although current CPI inflation remains below target, baseline projections indicate it could firm up to the upper range of the tolerance band by Q3FY27 due to an uncertain food price outlook and potential second-round generalization effects. The impact of these supply shocks is expected to noticeably weigh on the economy from Q4 onwards as higher energy costs pass through to retail products. In a highly positive move for the capital markets, the government has exempted Foreign Institutional Investors (FIIs) from capital gains tax on any interest earned from government securities. This fiscal cushion arrives at a crucial time, offering a strong shield to domestic markets as the RBI chief warned of volatile forex markets driven by shifting global sentiments.