Reserve Bank of India may maintain flexible policy rates amid slowing GDP growth

The Reserve Bank of India (RBI) is expected to maintain a flexible or ‘wait-and-watch’ approach regarding policy rates as economic indicators show mixed signals. A report from Crisil suggests GDP growth may slow to 6.6% this fiscal year, though financial conditions improved in July due to USD 4.2 billion in net Foreign Portfolio Investment (FPI) inflows.

These inflows, the highest since September 2024, helped drive the S&P BSE Sensex and NSE Nifty 50 higher. Additionally, systemic liquidity surplus widened, supported by FCNR(B) deposits and easing currency in circulation.

Meanwhile, Yes Bank estimates indicate headline WPI could average 9.0% for the year, while headline CPI is expected at 4.8%. While supply-side shocks have caused inflation concerns, analysts suggest the RBI may delay rate actions as they monitor whether these pressures translate into broad second-round effects, particularly given uncertainties regarding manufacturing input costs and the West Asia crisis.