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RBI to Hold Rates Amidst Rupee Slide & Fuel Hikes
1 Jun
Summary
- Economists predict RBI will keep repo rate at 5.25%.
- Rupee has depreciated over 5% since February.
- Inflation concerns may lead to revised forecasts by RBI.
The Reserve Bank of India (RBI) is widely expected to hold its policy repo rate at 5.25% this week, according to a poll of ten economists. This decision is anticipated even as the Indian rupee has experienced a significant depreciation, falling over 5% since February, and following recent increases in domestic fuel prices.
The RBI's Monetary Policy Committee (MPC) is set to announce its decision following its June meeting. Analysts suggest the central bank will maintain its 'neutral' stance, allowing flexibility in monetary policy. Despite pressure from the rupee's slide against the dollar, economists believe the RBI will not use interest rate hikes as a foreign-exchange management tool.
Concerns over inflation persist, fueled by higher global crude prices and domestic fuel adjustments. Several economists predict the RBI may revise its inflation forecast for FY27 upwards to around 5% while potentially lowering its growth estimate. The central bank targets retail inflation at 4% with a 2% tolerance band.
