RBI May Hike Rates as US Fed Decision Adds Pressure

The recent decision by the US Federal Reserve to raise interest rates has sent shockwaves across global markets, including India. The quarter-percentage-point rate hike has added pressure on the Reserve Bank of India (RBI) ahead of its monetary policy review in October.

RBI governor Sanjay Malhotra had highlighted the challenges facing the economy in his August review statement, citing inflationary pressures and volatility in global crude oil prices. The latest US Fed rate hike has further complicated matters for the RBI, which now faces a delicate balancing act between reducing inflation and maintaining growth channels.

The impact of the US Fed's decision is expected to be felt on India's loan EMI (Equated Monthly Installment) as well. When the US Fed hikes rates, dollar assets such as US Treasuries become more attractive, leading to capital outflows from India. This can put pressure on the rupee, making imports expensive and adding to inflationary pressures.

Economists are predicting a rate hike by the RBI in October or December to combat rising inflation. The central bank has been monitoring the situation closely, with retail inflation already inching towards 5% levels while WPI is nearing double-digit numbers. According to SBI Research, CPI inflation may cross 6.5% mark before dropping to less than 6% in early 2027.