Page 25 - Policy & Economic Report - July 2025

POLICY AND ECONOMIC
ROEILPO&RGTAS MARKET

Monetary Policy Outlook

The monetary policy outlook for India remains broadly stable, with policymakers expected to maintain a
balanced approach towards supporting economic growth while ensuring price stability. (RBI) is widely
expected to keep the repo rate unchanged at 5.25 per cent at the upcoming Monetary Policy Committee
(MPC) meeting scheduled for 3–5 August 2026. The survey also suggests that the current policy rate is
likely to be maintained through the remainder of 2026, reflecting confidence in the existing monetary
policy stance.

Although retail inflation increased to 4.38 per cent in June 2026, the rise has largely been attributed to
temporary supply-side factors, particularly higher food and energy prices. With domestic demand
remaining resilient and inflation expected to remain manageable, the current policy framework is
considered appropriate for supporting macroeconomic stability.

India's economic fundamentals continue to remain robust, supported by resilient domestic demand,
healthy investment activity and continued policy support. The expected moderation in economic growth
to 6.6 per cent in FY 2026–27 is consistent with a stable growth trajectory amid an evolving global
economic environment, allowing the RBI to maintain its focus on sustaining growth while keeping inflation
within its target range.

Manufacturing and Services Activity - India PMI

India's private sector activity moderated in July 2026, with business expansion easing to its weakest pace
in over three years amid softer domestic demand and increasingly challenging market conditions.
According to the HSBC Flash India PMI, the Composite Output Index declined to 54.3 in July from 57.1 in
June, signaling the slowest expansion in private sector activity since March 2022, although it remained
comfortably above the neutral 50-mark, indicating continued growth. Firms attributed the moderation to
rising competitive pressures, order cancellations, reduced client enquiries and shortages of key raw
materials.

The slowdown was driven primarily by the services sector. The HSBC Flash India Services PMI Business
Activity Index fell sharply to 53.1 in July from 57.4 in June, marking the weakest pace of expansion in 53
months. In contrast, manufacturing activity displayed greater resilience. The Manufacturing Output
Index improved to 57.0 from 56.3, indicating stronger factory output despite a marginal decline in the
headline Manufacturing PMI to 53.9 from 54.2 in June. This suggests that while overall factory conditions
softened slightly, production activity continued to expand at a healthy pace.

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