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The Reserve Bank of India (RBI) is unlikely to raise interest rates in its August monetary policy review and may keep them on pause until October, despite rising inflation risks, according to a monetary policy review report by Centrum Institutional Research.
The brokerage said it does not expect the central bank to tighten monetary policy immediately, even after the RBI raised its inflation projections and lowered growth estimates for FY27 in the June 5 policy review. "Following... RBI MPC meeting, we do not expect a rate hike in August," Centrum said in its report. The report further added that "the MPC is likely to remain on hold as inflation stays within target and growth concerns persist." According to Centrum, the current inflationary pressures are largely being driven by external factors such as higher energy costs rather than strong domestic demand, reducing the need for an immediate rate hike. The report noted that RBI Governor Sanjay Malhotra had reiterated that the current inflationary impulse is "predominantly supply driven and imported in nature, arising from higher energy costs rather than domestic demand overheating." Centrum said this distinction was important because aggressive rate hikes would hurt economic growth without addressing the root cause of inflation. The report pointed out that the RBI has revised its FY27 inflation forecast upward to 5.1 per cent from 4.6 per cent earlier, while lowering its FY27 GDP growth estimate to 6.6 per cent from 6.9 per cent. Despite the inflation risks, Centrum believes the central bank will continue to prioritise growth concerns and monitor how the geopolitical situation evolves. "With domestic demand still recovering and global uncertainties elevated, policy normalization through a rate hike appears unlikely before October," the report said. However, the brokerage indicated that the possibility of a rate hike later in the year cannot be ruled out if inflation pressures broaden. "We expect the rate path to turn in the second half of FY27," the report said, adding that "October" could be the likely window for policy action if the ongoing conflict and related inflationary pressures persist. Centrum said the trajectory of crude oil prices, monsoon progress and core inflation over the next two quarters would be key factors influencing the RBI's future rate decisions. "The trajectory of the monsoon, crude, and core inflation over the next two quarters will be decisive for the rate call, with the duration and intensity of the conflict the critical monitorable," the report added. (ANI)
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