RBI likely to hold rates over next few quarters: Report
New Delhi, June 1
The Reserve Bank of India's Monetary Policy Committee is expected to keep interest rates on hold on June 5, as a sharp correction in Brent crude prices has eased concerns around inflation, a report said on Monday.
The report from Emkay Global Financial Services noted that a significant improvement in India's outlook for the external account over the past two weeks due to 22 per cent correction in Brent on hopes of a US‑Iran memorandum of understanding.
"We expect the RBI to remain on hold next week, which is positive for the consumption recovery story and the earnings cycle," the firm said.
The Indian rupee has gained 2 per cent to Rs 95 per dollar after touching Rs 96.96 per dollar on May 20, 2026.
The report forecasted that the re-opening of the Hormuz strait should drive Brent back to $75-80 and provide considerable relief to the rupee and RBI to remain on hold over the next few quarters.
It saw no need for the RBI to raise rates, even as inflation rose to roughly 4.5 per cent due to a roughly 7 per cent spike in petrol and diesel pump prices.
The firm expects a benign rate environment to support credit growth, which underpinned a consensus Nifty EPSg (EPS growth) of 14.2 per cent for FY27, with banks a substantial contributor.
Markets remained volatile amid continued uncertainty around the timing of a potential US-Iran deal and the reopening of the Strait of Hormuz (SoH).
On liquidity, the report noted surplus conditions contracted to roughly 0.2 per cent of net demand and time liabilities after the RBI injected $5 billion through a rupee‑dollar swap.
"We see no immediate cause for concern, once pressure on crude eases and, consequently, on the currency, the RBI should be able to restore liquidity conditions," the report noted.
Deposit growth remains healthy at 12.2 per cent year-on-year but unable to keep pace with credit growth.
The incremental CDR (trailing 12M) at 105 per cent is unsustainable, and the firm expects credit growth to moderate going forward, even if deposit growth improves to roughly 13 per cent as liquidity conditions ease.
— IANS
Reader Comments
As a salaried employee, I appreciate the stability. My home loan EMI has been manageable, and I'm glad RBI isn't hiking rates unnecessarily. But I worry about deposit rates - senior citizens in my family rely on fixed deposit income, and low rates are hurting them. Hope there's a balanced approach.
Interesting analysis from Emkay. The 22% correction in Brent crude is indeed dramatic - if the US-Iran deal really opens up Hormuz, we could see oil at $75-80. That would be a massive relief for India's import bill and the rupee. But geopolitics is never simple... 🤔
BJP government should take credit for this stability! But I'm skeptical - RBI has been 'on hold' before and then surprised us with rate hikes. Also, credit growth outpacing deposit growth at 105% CDR is worrying. Banks can't keep lending if people aren't saving enough. Need to watch this carefully.
I've been following Indian markets closely - the Nifty EPS growth projection of 14.2% for FY27 is solid if rates remain stable. But the reliance on US-Iran deal is a double-edged sword. One failed negotiation and crude could spike again, forcing RBI into a corner. Better to prepare for volatility.
Honestly, why is everyone assuming rates will stay low forever? Inflation at 4.5% might be 'acceptable' now, but petrol and diesel prices already jumped 7%. If crude doesn't stay down, RBI will have to act. I'd rather they hike a bit now than cause a shock later. But what do I know, I'm just
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