Citi, others dial back India rate hike calls as inflation expected to stay moderate

India’s moderating retail and core inflation have led several analysts to delay expectations of an imminent rate increase, overturning previous recommendations for tighter monetary policy aimed at stabilizing the rupee and curbing price rises.

June saw retail inflation climb to 4.38%, crossing the RBI’s 4% benchmark for the first time in over a year, though the April‑June average stayed at 3.9%. Core inflation was placed near 4% for the month, according to economists.

That suggests full‑year inflation might settle around 4.7% this fiscal year, below the RBI’s June forecast of 5.1%, Citi analysts noted in a Monday brief.

“The RBI is expected to trim its headline inflation projection by roughly 20 basis points in August, lessening the urgency for an immediate rate increase,” remarked Samiran Chakraborty, Citi’s top India economist.

“Further rate increases would only be considered if core inflation stays above 4.5% for a sustained period—a scenario deemed improbable in the near term—so we do not anticipate any hike in 2026,” Chakraborty added.

Earlier, the brokerage had forecast two 25‑basis‑point increases, one in August and another in October.

Interest‑rate swap markets are already pricing in the likelihood of rates remaining steady or edging slightly upward.

The one‑year overnight indexed swap now shows an expected 50‑basis‑point rise for the fiscal year, down from 125 basis points before the June policy meeting.

SBI Economic Research, which previously anticipated a 25‑basis‑point increase, now projects the RBI will hold rates steady throughout the year, forecasting average inflation of about 5%.

ANZ has withdrawn its August rate‑hike expectation and now favors a hold, noting that the monetary policy committee can pause to reevaluate inflation pressures.

In June the RBI kept rates unchanged, and the meeting minutes revealed that most members of the rate‑setting panel saw no justification for a pre‑emptive increase.

Although rates were left untouched, the RBI introduced steps to lure dollar inflows, including subsidies for foreign deposits and external borrowing by government‑owned firms and banks.

STCI Primary Dealer has likewise abandoned its rate‑hike outlook for the year, arguing that the RBI is apt to view the recent inflation uptick as a fleeting supply‑side disturbance and refrain from tightening.

Published on July 14, 2026