ICICI Research noted that the growth-inflation balance has changed considerably since the policy meeting. “Since the June policy meeting, growth-inflation balance has changed considerably with oil prices falling by 16%. Hence, minutes should be seen in that context,” the research group said. Brent crude was trading around USD 95/bbl during the meeting but has since declined substantially following a peace agreement and gradual opening of the Strait of Hormuz.
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On inflation, the minutes showed concerns dominated the discussion at the time of the meeting, with members flagging elevated energy prices, logistics costs and a weak monsoon. ICICI Research highlighted that members acknowledged underlying inflation dynamics remain benign. “At the same time, some members pointed out that underlying inflation dynamics are still benign (Core ex. precious metals), while adding that the increase in inflation is largely driven by food and fuel components (supply driven),” the report said. With energy prices now substantially lower, the outlook for inflation has improved, though the monsoon would play an important role.
On growth, ICICI Research said members acknowledged resilience in domestic activity even as risks were flagged. “Members acknowledged the resilience in domestic growth so far, but added that lower exports to the Middle East, higher energy prices and weak rainfall (agri output) pose downside risks to growth,” the brokerage noted. High frequency indicators such as automobile and tractor sales, bank credit and capacity utilisation showed resilience, while Q4FY26 GDP came in robust at 7.8% YoY after the policy.
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ICICI Research expects the MPC to revise its inflation projections lower in the August meeting if oil prices stay around USD 80-85/bbl and the conflict does not re-escalate. “Should oil prices average around USD 80-85/bbl. going forward, the MPC would revise its inflation projections lower. As a result, the near-term odds of increasing the policy rate have reduced,” the report said. The research group’s base case is for a 50-75bps rate hike with August still a live call, depending on June CPI and core CPI prints. Otherwise, the MPC would have time to assess the inflation outlook later in the year, with monsoon progress and the sustainability of the peace agreement key determinants.