RBI likely to hold rates, outlook expected to turn more hawkish: HSBC
New Delhi, June 2
The Reserve Bank of India is expected to keep policy rates unchanged in the upcoming Monetary Policy Committee meeting, although its communication may turn more hawkish as rising oil prices and a weaker rupee complicate the inflation outlook, according to an economist at HSBC.
Pranjul Bhandari, HSBC's chief India economist and macro strategist, projects a gradual tightening with about two rate hikes beginning in the fourth quarter of 2026 rather than an aggressive tightening cycle, as per reports.
Bhandari said the RBI's updated forecasts will provide clear indications of how policymakers view the impact of the ongoing energy shock.
At its previous review, the central bank used a baseline oil assumption of about $85 a barrel and an alternative scenario of $95.
The HSBC economist now believes that the higher oil assumption will be the RBI's base case, which would push inflation projections higher closer to 5 per cent up from the earlier projection of 4.6 per cent.
"Inflation is rising, which argues for higher rates, while growth is slowing, which argues against rate hikes," Bhandari said, calling it "the hardest situation for a central bank."
She warned that elevated oil prices and a possible El Nino could act as headwinds for growth, inflation control, the fiscal deficit and the current account.
A recent report from CareEdge Ratings said inflationary concerns have intensified due to projected below‑normal monsoon and recent retail fuel price hikes.
Sharp rise in WPI inflation also raises the risk of a faster second-round pass-through to consumer prices, it said, adding that the current uptick in inflation is a supply shock and not demand driven.
It projected FY27 GDP growth at 6.7 per cent assuming crude oil averaging USD 90/bbl. However, prolonged conflict and oil prices around $110/bbl could lower growth closer to 6 per cent.
— IANS
Reader Comments
The RBI is in a classic 'damned if you do, damned if you don't' situation. 📉 Oil at $90+ and a weak rupee are already making imports costly. I think they'll hold rates now but signal a hawkish tone to prepare markets. Two rate hikes in late 2026 sounds reasonable—that gives time to see if crude cools down. But the El Nino risk is real; if monsoon fails, food inflation will spike and then even a mild hike won't help.
Another day, another 'hardest situation' for the central bank. 😅 But seriously, I feel for them. The government is also watching fiscal deficit targets, and rising oil prices mean more subsidy burden. If we don't control inflation, the common man suffers. A gradual tightening from late 2026 might work, but what about now? We need clearer steps to manage supply shocks—like strategic oil release or better monsoon forecasting. Overall, a very interesting read.
This is a classic central bank dilemma worldwide, not just in India. 🔄 The HSBC economist's point about 'growth vs inflation' is spot on. A two-hike strategy from late 2026 seems cautious but smart. However, if global energy prices stay high and El Niño hits, India's inflation could overshoot 5% easily. I'd like to see the RBI focus on anchoring expectations rather than reacting reactively. Let's hope the monsoon brings some relief!
As a home loan borrower, this makes me a bit anxious. 🏠 If rates rise, EMIs go up. But I understand that inflation is a bigger enemy. The RBI holding rates now is good for monthly budgets. But the warning about WPI rise is concerning—if that passes to retail prices, my grocery bill is going to hurt. I wish the government also steps in to soften oil price impact through taxes. Overall, let's trust the RBI to steer through this.
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