RBI Holds at 5.25%; Malhotra Rejects Dovish and Hawkish Labels

The Reserve Bank of India held its benchmark repo rate at 5.25%, with the six-member Monetary Policy Committee voting unanimously to keep the policy stance at "neutral." Governor Sanjay Malhotra said the central bank is "neither dovish nor hawkish" and that future decisions will be data dependent rather than guided by market expectations of easing or tightening. The decision was widely expected.

Headline inflation has moved above the RBI's 4% medium-term target, mostly on fuel prices. The RBI still trimmed its average inflation forecast for the current fiscal year to 5.0% from 5.1% and cut its projection for core inflation to 4.3% from 4.7%. Policymakers also raised the growth forecast to 6.7% from 6.6%, citing resilient domestic demand and credit growth.

Malhotra said headline inflation has risen above target largely because of fuel prices. Underlying price pressures remain contained, he said. He reiterated the central bank's "resolute" commitment to the 4% objective.

Several Asian central banks have moved in a more hawkish direction in response to higher energy prices and currency volatility. The dollar held above JPY 160 after the Bank of Japan's hike, and the Aussie firmed on the RBA's hold, two currencies that moved after opposite policy decisions. The RBI instead held, opting to wait for clarity on whether the recent rise in oil prices will translate into broader inflationary pressures across the economy.

Broader economic conditions remain supportive, Malhotra said. He flagged a weak monsoon and global trade uncertainty as potential risks to growth.

The exchange rate will remain market determined, Malhotra said. The RBI stands ready to smooth excessive volatility and prevent disorderly market conditions. Asked about the rupee, he said it was "quite possible going forward that as tensions de-escalate, the rupee may strengthen."