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Below the Perspective on the RBI MPC Announcement by Madhavi Arora, Chief Economist, Emkay Global Financial Services

RBI MPC: Pause to assess, with easing in sight

* The MPC’s decision to hold rates today largely hinges on them waiting for clouds to clear around external and domestic uncertainties, including the impact of tariff hikes, GST cuts, and transmission of past easing.

* While the no-cut call was unanimous, two external members dissented on the policy stance (favoring an accommodative stance over neutral), hinting at some room for easing ahead.

This view is reinforced by policymakers acknowledging potential growth moderation in 2H as tariff effects kick in, noting that the uncertain outlook has created “policy space to further support growth.”

* The RBI has once again revised down its FY26 inflation estimate (the fourth revision since April), now projecting 2.6% versus 3.1% earlier.

We see risks of a further undershoot of ~30-40bps, which could support the case for a December cut (and beyond, depending on how tariff effects evolve).

* The RBI also lowered its 1QFY27 inflation forecast to 4.5% from 4.9%, keeping an eye on 4%+ inflation ahead.

Given repeated undershoots versus forecasts, we maintain the focus on one-year-ahead expected inflation looks increasingly misplaced in a fast-changing environment—particularly as Asia’s macro backdrop shifts toward a disinflationary bias.

* Domestically, core inflation (ex-gold/silver) continues to ease, reflecting softer demand. FY26 nominal GDP is likely to print below 8%, necessitating a recalibration of key macro and market variables—fiscal deficit/GDP, debt/GDP, credit growth, corporate earnings, FPI flows, among others.

A shortfall in nominal growth would mean much sharper fiscal compression is needed to achieve similar debt/GDP improvements.

* This macro reset calls for front-loaded rather than back-loaded policy support. The timing and magnitude of rate cuts ahead will thus be critical.

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