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RBI Rate Hold: Inflation Fears Loom Large
11 Dec
Summary
- Reserve Bank of India likely to hold repo rate at 5.25% through next fiscal year.
- Rupee projected to trade near 90/USD by end-2025 and 90.5/USD in 2026.
- RBI forecasts inflation rebound to 4% by second half of 2026.
The Reserve Bank of India is anticipated to keep its policy repo rate steady at 5.25% throughout the next fiscal year, according to projections. This stance follows a recent rate cut and comes amidst varied expert opinions on future monetary policy. The central bank's focus appears to be on managing inflation, with forecasts suggesting a rebound to around 4% by the latter half of 2026.
The Indian rupee is also under scrutiny, with predictions indicating it will trade near 90 against the US dollar by the end of 2025 and around 90.5 in 2026. Despite softening growth expectations, the central bank has adjusted its GDP forecast upwards for FY26, signaling resilience in the economy. Measures have also been introduced to inject liquidity and ease borrowing costs.
Risks to these economic forecasts include the potential for further currency depreciation and a weaker economic outlook if trade disputes escalate. The RBI's previous actions included significant rate cuts and liquidity-boosting measures to combat post-pandemic inflation and support economic activity.
