New Delhi [India], August 1 (ANI): The Reserve Bank of India (RBI) is likely to keep the repo rate unchanged at 5.25% at the upcoming Monetary Policy Committee (MPC) meeting, with policymakers expected to adopt a wait-and-watch approach amid heightened uncertainty over inflation, growth and global conditions, according to a research report by Nuvama.

While a rate hike is unlikely, the RBI's guidance on the future policy path is expected to be closely watched, particularly its assessment of inflation risks, liquidity conditions and the external environment, the report said. The central bank may prioritise liquidity management over further rate action in the near term, while retaining a calibrated and flexible policy approach.

Inflation risks have become more uncertain due to supply-side factors. Oil prices remain highly volatile amid the US-Iran conflict, while disruptions in the Strait of Hormuz and the Red Sea have added to concerns over supply chains. Prospects of a weak or uneven monsoon, including risks associated with El Nino, could further put pressure on food inflation.

At the same time, several companies have implemented price hikes, adding another potential source of inflationary pressure. Against this backdrop, the MPC is likely to avoid a rate cut or hike for now and instead assess how these risks evolve.

Financial conditions have already tightened in recent weeks, with India's 10-year bond yields rising. This hardening in yields reduces the immediate need for additional rate action and reinforces the case for the RBI to maintain the status quo while focusing on liquidity conditions.

The broader macroeconomic picture remains mixed. Credit growth has shown signs of improvement, although overall economic momentum remains uneven and concentrated in certain segments. The impact of GST rate cuts has provided some support to activity, but the boost could fade in the second half of FY27.

Meanwhile, intensifying El Nino-related risks could weigh on growth through their impact on agriculture and food prices. External demand also remains subdued amid uncertainty in the global backdrop for exports.

The RBI is therefore expected to closely monitor demand conditions, liquidity dynamics, inflation and developments in the West Asia conflict before considering further policy action. The stance is likely to remain flexible, allowing policymakers to respond to incoming economic data and external shocks.

With the repo rate expected to remain at 5.25%, the MPC's commentary could prove more significant for markets than the rate decision itself, particularly its signals on the timing and direction of future policy moves. (ANI)