RBI Holds Fire as Global Peers Hike Rates

India's central bank, the Reserve Bank of India (RBI), is expected to keep interest rates unchanged this week, despite rising inflation and pressure from global peers to hike borrowing costs. According to a Reuters poll, 68 out of 72 economists predict that the RBI will hold rates steady on Wednesday.

The decision comes as 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. However, the Federal Reserve and Bank of Japan have kept rates on hold.

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 used by the central bank to deal with short-term supply shocks. Core inflation has also remained contained near 4%.

RBI Governor Sanjay Malhotra told The Hindu BusinessLine newspaper that signs of higher fuel prices feeding into more generalised inflation remain limited, but inflation expectations have risen, suggesting pressures are building. Wholesale inflation climbed to 9.87% in June.