RBI Signals Potential Rate Hikes Amid Inflation Concerns

India's rate setters have signaled that they may hike interest rates in the future to combat inflation, despite leaving rates unchanged at their policy meeting earlier this month. The Reserve Bank of India (RBI) kept the policy repo rate at 5.25% on August 5, while maintaining its neutral monetary policy stance.

The decision was influenced by a sharp rise in oil prices due to the war in the Middle East, which has stoked inflation worries and prompted markets to price an increase in borrowing costs. India imports nearly 90% of its crude requirements, making it vulnerable to global energy price volatility.

RBI chief Sanjay Malhotra noted that while there are limited signs of inflation becoming generalized so far, headline inflation appears to be normalizing from its benign levels seen hitherto. He emphasized the need to watch for evidence of supply-sparked inflation seeping into the broader economy and warned that any signs of this would necessitate policy tightening.

Central bank Deputy Governor Poonam Gupta pointed out that there is no scope for further policy easing, and a case for a rate hike may emerge during the course of the fiscal year. However, she also cautioned that due to global developments and weather risks, it's best to wait and watch a bit more.