MPC minutes signal hawkish tilt; rate hikes may come sooner if inflation broadens: Report

New Delhi [India] August 20 : The minutes of the Reserve Bank of India's Monetary Policy Committee meeting have struck a more hawkish tone than the policy statement, with members flagging risks of inflation becoming more broad-based amid buoyant domestic demand, according to an ICICI Bank research report.
The report said the key shift between the policy statement and the minutes was the greater emphasis on the risk of higher energy and food prices feeding into broader inflation in the coming months.
"Minutes of MPC meeting should be perceived as hawkish as against the policy statement which was seen as dovish," the report said.
According to the report, the RBI's current trajectory points to headline inflation averaging 5.6 per cent in the second half of FY27, while core CPI, excluding gold, is expected to cross 4 per cent in the fourth quarter of FY27. MPC members are inclined towards raising rates if demand-driven inflation converges with core inflation.
The report noted that policymakers are increasingly concerned about the eventual pass-through of higher energy and food prices. Indicators including enterprise surveys, household inflation expectations and price increases across chemicals, plastics, rubber and commercial LPG suggest that supply shocks could be becoming more widespread.
"One of the RBI members on the committee stated that CPI peaking at 5.9% in Q3FY27 may build the case for a rate hike," it said.
The report also said the Governor's assessment indicated that convergence of core CPI, excluding precious metals, could warrant a recalibration of policy rates, with this threshold expected to be reached in Q4FY27 under the current trajectory.
While the report expects headline inflation to average 4.8 per cent in FY27, it cautioned that sustained high oil prices and higher food inflation could bring forward the timing of a rate hike.
On growth, MPC members remained optimistic despite external headwinds. Vehicle sales, credit growth, government capital expenditure and the performance of listed companies were cited as indicators of strong economic momentum. The Central Bank has revised the GDP growth for FY27 upwards by 10 basis points to 6.7 per cent.
The research report, however, flagged US tariffs, energy prices and potentially weaker agricultural output as downside risks to growth.
"if oil prices remain elevated and global interest rates do go up, then it can push the rate hike trajectory closer to December than February/April," the report said.
The report's base case is for rate hikes to begin when core CPI, excluding gold, moves above 4 per cent in Q4FY27. It estimates the rate-hike cycle could involve around 50 basis points, while a larger 75-basis-point increase is possible if oil prices and inflation pass-through are higher than expected, though that is not its base case.