It’s hard to envy the MPC’s task—but under today’s uncertainty, holding rates steady is its best option

Understandably, all eyes are on the MPC; in particular, on the governor’s statement at the end of it. But expectations of rate action are virtually non-existent.

From a scenario where GDP growth was doing well and inflation was well within our target range, though higher after the consumer price index was recast with 2024 as its base, we now face a scenario that is diametrically different.

Economic growth shows signs of slowing, while inflation edges up. True, we will have to wait till the end of May to get updated GDP numbers, but high-frequency indicators already suggest a slowdown.

As for the cost of living, retail inflation for February 2026, the last data point available, has risen to a 10-month high of 3.2% year-on-year, up from 2.7% in January. Economists expect the March print to reflect the impact of the Gulf conflict, which began on 28 February, with dearer fuel just the nub of it.

Multiple supply disruptions mean that higher prices will afflict not just oil and gas, or even their products, but a host of other things as well.

Caught between the devil and the deep sea—slower growth and higher inflation, i.e.—what should the MPC do?

Maintain status quo on interest rates. This seems to be the obvious answer. After all, slower growth would call for lower policy rates (but possibly run the risk of stimulating demand just when we want a lid kept on demand pressures), while higher inflation would call for higher rates (and possibly dampen already-weakened growth impulses).

Faced with this dilemma, the MPC would find it best to do what most other large central banks—the US Federal Reserve, Bank of England and European Central Bank, among others—have done. Hold its policy repo rate (at 5.25% in India’s case), while keeping a wary eye on the evolving situation.

In an interview with Bloomberg, International Monetary Fund managing director Kristalina Georgieva cautioned policymakers that they cannot assume the battle against rising prices is over. “A rapid rise in oil prices could ripple through global markets, stoking inflation while constricting economic growth.” Governments and central banks, she warned, “might have much less room to cushion fresh shocks than during earlier crises.”

Given the uncertainty over how the flare-up in West Asia will play out on the Indian economy, it makes sense for the MPC to bide its time, assess evolving conditions and then act, if necessary. For now, it will be better served by focusing on the commentary that accompanies the governor’s statement.

At the February MPC meet, the panel had desisted from making its customary growth and inflation projections for the year, since the National Statistical Office was in the midst of revising the base year and methodology of GDP estimation. It sought time, instead, till the April policy to declare its projections, saying it would need to analyse the impact of statistical changes as well as that of tariffs.

Well, this time round, it has another imponderable to address—the war.

Settling for a no-show on rates, while ever-changing tariffs and an oil shock complicate an already complex situation, will grant the MPC time to work out the economy’s trajectory—even if it proves to be off the mark, a probability that has clearly gone up.