RBI Expected to Hold Repo Rate Unchanged Amid Global Uncertainty

India's Reserve Bank of India (RBI) is expected to keep its repo rate unchanged on Wednesday, according to economists surveyed by Reuters. Out of 72 economists polled, 68 expect the RBI to leave interest rates at their current level.

The decision comes as central banks in Europe, Australia, Indonesia, the Philippines, Singapore, South Korea, and South Africa have raised benchmark interest rates due to higher inflationary pressures following the US-Israel conflict involving Iran. However, the US Federal Reserve and Bank of Japan have also left rates unchanged.

India's retail inflation accelerated to 4.38% in June, crossing the RBI's 4% target for the first time in 17 months. Despite this, it remains within the central bank's tolerance band of 2% to 6%. Core inflation has also remained close to 4%, giving policymakers room to wait before taking any policy action.

Economists believe that Governor Sanjay Malhotra-led MPC may acknowledge that inflation risks are increasing due to rising crude oil prices, geopolitical tensions, and pressure on the rupee. Interest-rate swap markets are already pricing in around 75 basis points of rate hikes over the next 12 months, reflecting expectations that tighter monetary policy may eventually become necessary if inflation remains elevated.