RBI puts Q3 rate hike in play if inflation risks flare up

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Key points

• While the projection for the second quarter is 4.7% and the fourth quarter at 5.5%, the headline inflation measured by Consumer Cost Index is projected at 5% for FY27.
• Reserve Bank of Indiainflationmonetary policypolicy rate tighteningfood and fuel pricescore inflationConsumer Cost Index.
• "Any evidence of these risks materialising may need policy tightening, " he remarked.: Cabinet approves one highway and four railway multi-tracking projects Live Events.
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• RBI MPC puts Q3 rate hike in play if inflation risks show up major.

RBI MPC puts Q3 rate hike in play if inflation risks show up major. ET BureauLast Updated: Aug 20, 2026, 12: 42: 00 AM IST.

Indian monetary policy makers may tighten rates in the third quarter if inflation risks materialize. Higher food and fuel rates could lead to broad-based inflation, prompting action. Inflation is projected to peak at 5.9% in Q3 2026-27, signaling potential policy shifts. The central bank remains watchful of global economic turbulence and its domestic impact. Monetary response is warranted if inflation expectations become de-anchored or persistent. Listen to this article in summarized format. Unlock AI Briefing and Premium Content. Subscribe Now Already a member? Sign In.

KOLKATA: India's monetary policymakers flagged the possibility of policy rate tightening in the third quarter if higher food and fuel rates lead to a second-order impact and translate into a broad-based rise in inflation, the minutes of the Reserve Bank of India's (RBI) August monetary policy session demonstrated. Risks of a broad-based growth in inflation remain even as, until June, there was no evidence of overheating on rates despite irregular monsoons and fresh conflict escalation in West Asia. "We also need to be watchful as the risks of higher food, fuel and other input prices translating into a broad-based increase in inflation and de-anchoring of expectations persist, " RBI Governor Sanjay Malhotra remarked at the gathering held between August 3 and 5, in which the policy rate was kept unchanged at 5.25%.

Deputy Governor Poonam Gupta additionally expressed similar worries. "Given that the inflation is projected to peak to a level as high as 5.9% in Q3 2026-27, a case for a hike may emerge during the course of the year, " she remarked. While the projection for the second quarter is 4.7% and the fourth quarter at 5.5%, the headline inflation measured by Consumer Cost Index is projected at 5% for FY27. Core inflation, which does not include the impact of food and fuel cost movements, is projected at 4.3% for FY27.: CCI relaxes commitment norms, extends filing window to 60 days Governor Malhotra stated that monetary response to a supply-side shock is warranted when there are signs of it, leading to a generalisation of inflation, de-anchoring of inflation expectations or persistent inflation. Notably, the headline inflation rose to 4.4% in June and 4.5% in July after remaining benign and well within the 4% target for 16 months. Malhotra underscored the signs of a normalisation of inflation from its benign levels seen earlier. He remarked that the average inflation last year, when the policy rate was brought down to 5.25%, was only 2%, while the headline inflation this year already averaged 3.93%.The core inflation. It does not include the impact of food and fuel rate movement, is additionally projected to average 4.3% in 2026-27. "This may suggest a recalibration of policy rate, " he remarked. According to It may be, the committee decided to continue with the neutral stance, keeping the space open for either a hike or cut in policy rate. "The persistence of high fuel rates is anticipated to feed into second-round inflation, resulting from pass-throughs of higher input costs to consumer rates. Inflation risks might then become tilted to the upside. Furthermore, household inflation expectations remain elevated. It can potentially contribute to tertiary pressures, " external MPC member Saugata Bhattacharya remarked. According to The central bank, the turbulent global economic environment is projected to have some bearing on domestic economic activity. Conflict in West Asia, volatile oil rates, sticky inflation expectations, and fragile public finances in systemic economies pose significant downside risks to the global outlook. "The concerns arising from the West Asia conflict and the blockade of the Strait of Hormuz have not receded, " external MPC member Nagesh Kumar remarked at the gathering. Add Now!

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For now, RBI puts Q3 rate hike in play if inflation risks flare up remains the part of the story worth watching, and further updates are likely as more details are confirmed.