Page 27 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

Figure 12: Output PPI for All Commodities

Monetary Policy Outlook

The Reserve Bank of India (RBI) maintained a balanced and data-dependent monetary policy stance in
August 2026, keeping the policy repo rate unchanged at 5.25 per cent while retaining its neutral stance.
The decision reflected the MPC's assessment that the prevailing growth-inflation balance remained
broadly manageable, even as geopolitical developments, energy prices and evolving global financial
conditions continued to create uncertainty. The Standing Deposit Facility (SDF) rate remained at 5.00 per
cent, while the Marginal Standing Facility (MSF) rate and Bank Rate remained at 5.50 per cent. The
decision was unanimous.

The RBI's assessment of domestic economic activity remained constructive. Growth continued to be
supported by resilient domestic demand, improving investment activity and sustained momentum across
manufacturing and services. At the same time, the moderation in some high-frequency indicators and
continuing external uncertainties warranted a cautious policy approach. The neutral stance therefore
provides the RBI with flexibility to respond to changes in inflation and growth conditions rather than
committing to either further easing or tightening at this stage.

Inflation remains a key consideration for the policy outlook. While underlying inflation has remained
relatively contained, the RBI continues to monitor the possibility of broader price pressures emerging
from higher crude oil prices, geopolitical tensions, uneven monsoon conditions and supply-side
disruptions. Liquidity management has also emerged as an increasingly important component of the
monetary policy outlook. The substantial inflows generated through the temporary FCNR(B) deposit
scheme have increased banking-system liquidity, requiring the RBI to actively manage surplus liquidity
through its market operations. Recent market developments suggest that the central bank is likely to
continue using liquidity-management tools to ensure that surplus liquidity does not weaken the
transmission of monetary policy or create additional inflationary pressures.

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