The August MPC minutes point to a subtle but meaningful shift in the monetary policy debate
Download ReportQuantEco Research | MPC Minutes | Aug-26 | Normalization knocking
The August MPC minutes point to a subtle but meaningful shift in the policy debate. While the Committee unanimously retained the repo rate at 5.25% and the neutral stance, the internal members appear increasingly less comfortable with the prevailing policy setting as inflation is projected to rise above 5% in H2 FY27 and Q1 FY28. Deputy Governor Poonam Gupta struck the most hawkish note, explicitly flagging that the case for a rate hike could emerge later in the year. Governor Sanjay Malhotra, while more measured, also acknowledged that a materialisation of upside inflation risks may eventually warrant policy tightening. Meanwhile, the external members remain relatively more growth-sensitive, drawing comfort from benign core inflation and limited evidence of demand-side overheating pressures. This divergence reinforces the MPC’s preference to wait for greater clarity on the monsoon, geopolitical risks, and the transmission of higher input costs into core inflation. Taken together, the minutes appear hawkish, in contrast with the market's dovish interpretation of the policy tone delivered on Aug 5th. For the first time, there is now a clear reference to the end of the easing cycle. We continue to expect the Oct-26 review to deliver a hold but retain our call for a 25–50 bps increase in the repo rate by Mar-27, with Dec-26 now emerging as a live option for the first hike.