RBI Holds Rates Amid Elevated Inflation Risks
The Reserve Bank of India (RBI) is expected to keep its benchmark repo rate unchanged in August due to elevated inflation risks and pending the closure of the FCNR(B) deposit scheme. A poll of 10 economists and treasury heads revealed this expectation, with most respondents anticipating a 'Neutral' policy stance while adopting a hawkish tone amid rising inflation pressures.
Economists cited geopolitical tensions, elevated crude oil prices, and an uneven monsoon as factors contributing to the increased risk of inflation. Aditi Nayar, chief economist at ICRA, stated that trimmed core inflation remains benign and suggests maintaining the status quo is the best policy option for now. Gopal Tripathi, head of treasury at Jana Small Finance Bank, added that the RBI will wait for the monsoon to play out and for the success of the FCNR (B) scheme.
The MPC meeting is scheduled between August 3 and August 5 to decide on policy rates. The central bank has reduced the repo rate by 1.25 per cent since last year to aid growth, but most respondents see the policy rate moving higher over the course of FY27 with at least two rate hikes during the fiscal year if inflationary pressures intensify.