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The US Federal Reserve's 25-basis-point rate hike, coupled with crude oil prices above USD 100 a barrel and persistent inflation, could put pressure on the Reserve Bank of India to tighten monetary policy, even as the timing of any domestic rate increase remains uncertain, market experts said.
The US Federal Open Market Committee (FOMC) raised the federal funds target range by 25 basis points to 3.75-4 per cent, its first rate increase since 2023. The Fed said inflation remained elevated, while economic activity was expanding at a solid pace, supported by resilient domestic spending, productivity growth and robust capital investment. Deepak Agrawal, CIO-Debt & Head Products, Kotak Mutual Fund, said the Fed's decision and guidance for another rate hike in 2026 would keep global rates elevated. "Given the elevated inflation, the FOMC hikes rates by 25 bps and guided for one more hike in CY 2026. This will help in bringing down inflation to 2% goal and restore the FOMC credibility," Agrawal said. He added that rising crude prices, inflation and global rates could influence India's monetary policy. "Rising crude and inflation along with increasing global rates may also guide the India MPC to raise rates by 50 bps," he said. Vikas Gupta, CEO & Strategist, Omniscience Capital, also pointed to persistent inflationary pressures in both economies and said another US rate hike was possible before the end of 2026. "India's inflation has also been persistent and above 4% with likely upward pressure. The high oil prices and weak INR combined will likely make the RBI consider a rate hike in the next meeting," Gupta said. However, he said an immediate RBI rate increase was not certain, adding that the central bank could choose to adopt a tougher stance first and raise rates at a subsequent meeting. Rajesh Palviya, Head of Research, Axis Direct, said the Fed's move marked a renewed shift towards tighter monetary conditions and could keep US Treasury yields and the dollar firm. For India, he said higher US yields, a stronger dollar and crude oil above USD 100 a barrel could keep the rupee under pressure, while domestic bond yields may remain elevated and foreign portfolio flows could remain volatile. "In the near term, equity markets may remain volatile," Palviya said, adding that if oil prices stabilise and the Fed signals a limited tightening cycle, markets could gradually shift focus back to domestic earnings and growth. The latest Fed decision and its guidance on further rate increases are therefore likely to remain key factors for global borrowing costs and the policy outlook in India, according to expert insights. (ANI)
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