RBI likely to hold rates in June MPC meet, GDP pegged at 6.6 pc for FY27: SBI report
New Delhi, May 31
The Reserve Bank of India is likely to hold repo rate hike in its June monetary policy meeting and must use short-term rates and nudging to manage the pressure on the domestic currency, an SBI Research report said on Sunday.
"Our call is along 'hold the rates' with a data-driven future dependency. However, an inflation targeting central bank can always use interest rate tools like operation twist that addresses market microstructure," the report suggested.
It projected GDP growth at 6.6 per cent for FY27. However, with the continued geopolitical uncertainties, the numbers will be revised as more data comes in, the report mentioned.
The report expected Q4 FY26 real GDP growth at closer to 7.2 per cent and FY26 GDP growth likely to be at 7.5 per cent.
Going by the growth-inflation spiral, CPI trajectory (as of now) may indicate more than 5.0 per cent inflation for the next three quarters (current quarter at 4.0 to 4.1 per cent).
"FY27 CPI inflation projections are currently at 5 per cent with risks tilted to upside, though well under RBI's target range," said the SBI report.
Despite strong macro fundamentals, rupee is depreciating much more compared to other currencies.
"Therefore, there is a need for augmented intervention by the RBI. Also, India's forex reserves are optimally sufficient to combat the unidirectional slide of rupee, while aiming to curb excess/undesired volatility concomitantly as the prime aim. There is a clear felt need for a comprehensive BOP package," the report noted.
With no trust woven in ongoing 'peace' talks in West Asia, the risk premium can remain detached from the underlying going forward, taking a toll on Crude prices that could be trading above $90 for major parts of the 2026.
"Mathematically, excise duty on diesel and petrol need to be reduced by Rs 5 to cover the OMC loss completely from the current levels, otherwise domestic fuel prices need to be further increased by Rs 6 from current levels," the report said.
— IANS
Reader Comments
The report's suggestion to cut excise duty on petrol/diesel by Rs 5 makes sense. We are already paying sky-high fuel prices. Why should the common man bear the burden of OMC losses? Government should act on this instead of just talking about growth numbers.
Interesting that SBI is projecting 7.2% for Q4 FY26 but overall FY26 at 7.5%. So the growth is slowing down? And then FY27 at 6.6%... seems like we are heading for a cooling period. RBI should keep a close watch on rupee depreciation - it's hurting importers badly.
I appreciate the report's honesty about inflation being above 5% for next three quarters. But "well under RBI's target range" is a bit misleading - when CPI is at 5% and the target is 2-6%, we are near the upper band. Let's not sugarcoat things.
The mention of West Asia peace talks affecting crude prices is spot on. If crude stays above $90 for most of 2026, that's going to spike our import bill and worsen the rupee. RBI needs a comprehensive BOP package as the report suggests.
Operation Twist sounds fancy but will it actually help the common person? For salaried class like me, rate holds mean EMIs stay high, and inflation keeps eating into savings. Feels like we are stuck between a rock and a hard place. 😕
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