RBI Rate Hike Likely as US Fed's Tightening Hits Indian Economy
The US Federal Reserve raised interest rates for the first time since July 2023 by a quarter percentage point, which may impact RBI's rate decisions. This hike adds to the challenges facing RBI ahead of its monetary policy review in October.
RBI governor Sanjay Malhotra had said that global growth is projected to soften while inflation forecast is higher for 2026. With inflation rising and GDP growth beating estimates, experts see a rate hike by RBI as a prudent move.
The US Fed's rate hike signals tighter monetary conditions, which can lead to capital outflows from India. This can put pressure on the rupee, making imports expensive. As India imports around 90% of its crude needs and oil prices are rising globally due to the US-Iran conflict, a weaker rupee will add to input cost pressures and potentially trigger higher inflation.
Most economists and experts expect RBI to hike repo rate this year, if not in the October policy, then in the December one. A 25 basis point repo rate hike would mean that home-loan EMIs could rise, repayment periods could lengthen, or both.