RBI Expected to Hold Rates Steady Despite Rising Global Inflation

The Reserve Bank of India (RBI) is expected to keep interest rates unchanged this week, diverging from its global peers as inflation remains modest despite higher oil prices. Central banks in Europe, Australia, Indonesia, the Philippines, Singapore, South Korea, and South Africa have raised benchmark borrowing costs since the US-Israeli war on Iran began five months ago.

The RBI's Monetary Policy Committee (MPC) will hold rates steady on Wednesday, according to 68 of the 72 economists polled by Reuters. Although retail inflation accelerated to 4.38% in June, above the RBI's 4% target for the first time in 17 months, it remains within the 2-6% tolerance band.

Core inflation, which excludes volatile prices of food and fuel, has also remained contained near 4%. 'Although core and underlying inflation have risen modestly, they remain within the RBI's comfort zone. Consequently, a rate hike is unlikely in 2026 unless core inflation sustains above 4.5%', said Samiran Chakraborty, Citi's chief India economist.