Key facts
- The Reserve Bank of India is expected to maintain its key interest rate at 5.25% through 2026.
- Inflation in June was 4.38%, above the RBI's 4% target.
- Approximately 95% of economists surveyed by Reuters expect no rate change at the August meeting.
- The RBI is unlikely to raise interest rates to support the Indian rupee.
- Growth concerns are prioritized over inflation by the central bank.
- Poll medians suggest interest rates will remain unchanged until early 2027.
The Reserve Bank of India (RBI) is projected to maintain its benchmark interest rate at 5.25% through the remainder of 2024 and into early 2027, according to a Reuters poll of economists. This decision comes as the central bank balances rising inflation, which recently surpassed its 4% target, against concerns for economic growth impacted by global factors like the Middle East conflict and U.S. tariffs.
Nearly 95% of the 72 economists surveyed by Reuters expect the RBI's Monetary Policy Committee to hold the repo rate steady at its August 3-5 meeting. This marks a significant shift from a May poll, where a rate hike was anticipated for the following quarter. Governor Sanjay Malhotra has indicated that discussions about raising rates are premature.
Economists cited the potential adverse effects on growth as a primary reason for the RBI's cautious approach. While inflation has edged up, persistent pressures would be needed to prompt a rate hike. However, if oil prices remain above $90 a barrel, the RBI might reconsider its stance in the latter half of the fiscal year.
Despite a nearly 7% weakening of the Indian rupee against the dollar this year, economists believe the RBI will refrain from using interest rate hikes to support the currency. This is due to the projected slowdown in economic growth to 6.6% this fiscal year from 7.7% last year and the perceived ineffectiveness of rate hikes for currency management at this juncture. The RBI has implemented other measures to attract foreign capital, drawing approximately $20 billion in inflows since June.
Poll medians forecast inflation to average 4.8% for the current fiscal year, slightly up from previous estimates but still below the RBI's own projection of 5.1%. Rate hikes are only anticipated if inflation climbs above 6% and shows signs of sustained persistence.