RBI seen holding rates as inflation risk stay in focus

The Reserve Bank of India is anticipated to hold its policy rate steady on Wednesday, as officials evaluate whether the surge in energy prices stemming from the renewed West Asia conflict will filter into wider inflation before any decision to tighten borrowing costs.

The six‑person Monetary Policy Committee, chaired by Governor Sanjay Malhotra, is expected to keep the repo rate at 5.25 percent, a view shared by all but one of the 30 economists polled by Bloomberg. Shilan Shah of Capital Economics Ltd stands alone in predicting a 25‑basis‑point increase.

The panel is also likely to maintain a neutral posture, with inflation staying inside the RBI’s 2 percent‑6 percent tolerance band and Malhotra indicating that action will be taken only if price pressures become more pervasive.

Investors will watch Malhotra for clues about what might trigger future rate hikes and how the RBI intends to steer the rupee after relaxing rules to lure foreign‑currency inflows. Numerous analysts, including Santanu Sengupta of Goldman Sachs Group Inc., forecast that the RBI could start lifting rates in October.

Soumya Kanti Ghosh, chief economic adviser at State Bank of India Group and a member of the Prime Minister’s Economic Advisory Council, is among a small group of economists who think the RBI will stay on hold through the fiscal year ending in March.

Conveying that stance, however, may be difficult amid heightened global uncertainty, Ghosh noted. “Oil price swings, rupee strain, caution over external flows, and higher inflation forecasts make an overtly dovish tone unlikely.”

India’s consumer‑price inflation crossed the RBI’s 4 percent target for the first time in 17 months, climbing to 4.38 percent in June. July’s data, due next week, may reveal whether price pressures are becoming more entrenched.

The finance ministry issued its first official alert last week that inflation is spreading beyond food items.

The nation’s biggest consumer‑goods firms are also gearing up for a second consecutive quarter of price hikes on goods ranging from toothpaste to tires and paint, signalling that higher input costs are being passed on to shoppers.

Financial markets have fully priced in a hold this week. Interest‑rate swaps suggest roughly 75 to 100 basis points of future rate increases, although traders have shifted expectations for most of those moves into next year, according to Tata Asset Management.

Malhotra is set to announce the policy decision in a televised address at 10 a.m. in Mumbai. Here’s what analysts will be monitoring:

Growth‑Inflation Outlook

Most economists expect the RBI to keep its inflation projection unchanged at 5.1 percent for the fiscal year ending March 2027. Growth forecasts are also anticipated to remain at 6.6 percent. Those estimates, released in June, were based on an assumption that crude oil would average about $95 per barrel.

Although Brent crude briefly touched $100 a barrel recently, it has averaged around $85 since early July. Consequently, some analysts, including those at Citigroup Inc. and Goldman Sachs, see room for the central bank to trim its inflation forecast.

Stock Markets

The rupee has rebounded as much as 3 percent from its May low after the RBI and the government introduced steps to draw foreign capital. Over $40 billion has entered India since the central bank eased rules on foreign‑currency deposits and overseas borrowing.

The State Bank of India estimates these measures could pull in $80 billion to $85 billion by year‑end. Most analysts expect the RBI to absorb much of those inflows into its foreign‑exchange reserves, curbing further rupee appreciation while bolstering domestic liquidity.

“The market remains wary of geopolitical developments in the Middle East and is therefore likely to prefer the shorter end of the yield curve over longer‑dated bonds,” said Sameer Karyatt, executive director and head of trading at DBS Bank India. The bank projects the benchmark 10‑year government bond yield to stay above 6.70 percent; it was flat at 6.84 percent on Tuesday.

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Published on August 4, 2026