economy · 2026-07-27
RBI Set to Hold Rates Steady Through 2026
Photo: Subhrasingh / Wikimedia (CC BY-SA 4.0)
RBI will likely hold rates at 5.25% in Aug and rest of 2026, say 68 of 72 economists in a Reuters poll.Growth risks from the Middle East war and US tariffs now outweigh inflation concerns, reversing May's rate hike forecast.Rupee has fallen ~7% this year despite $20Bn in inflows, but RBI won't hike rates just to defend it.
Why did economists reverse May's rate hike call?
Inflation hit 4.38% in Jun, above RBI's 4% target, but Governor Sanjay Malhotra called a hike premature given growth risks from tariffs and the Middle East war on vulnerable sectors.
What exactly changed economists' minds since May?
Governor Sanjay Malhotra's public comment that a hike was premature shifted sentiment, alongside the Middle East war and tariffs hitting exposed sectors harder than resilient macro indicators suggested.
How many economists still expect a hike?
Over 80% of economists, 59 of 70, in the Reuters poll expected the RBI to hold the repo rate at 5.25% at its February meeting. Of the rest, 10 forecast a 25-basis-point cut and one expected a 50-basis-point cut — none anticipated a hike.
What would make RBI act before early 2027?
, which combined with widening monsoon rain deficits could accelerate inflation and prompt earlier RBI action.
Could high oil prices still force a rate hike?
Kanika Pasricha of Union Bank of India said if oil stays consistently above $90/barrel, RBI could consider hiking rates in the second half of this fiscal year.
Why does $90 oil matter more than $80 or $85?
Crude above $90 a barrel specifically triggers concrete fiscal pain: SBI Research estimates imported inflation jumping to 7.3% in May 2026, and says covering Oil Marketing Company losses at that level requires either a Rs 5/litre excise cut or a Rs 6/litre retail price hike, unlike lower price bands.
How did June's $20Bn inflow measures work?
The RBI's June package included a zero-cost swap facility letting banks offer higher rates on Foreign Currency Non-Resident deposits, drawing $17.41Bn; concessional swaps for External Commercial Borrowings added $1.34Bn; and Overseas Foreign Currency Borrowings by authorised lenders brought in $1.97Bn, totaling $20.7Bn by mid-July.
Why won't RBI just hike to defend the rupee?
RBI officials fear rate hikes would do little to steady the rupee while risking further damage to already slowing growth, with inflation remaining subdued; a meaningful currency defence would require steep increases, and smaller moves would have little impact while crimping demand, sources said.
Who gets hurt most by the weak rupee right now?
Growth is forecast to slow to 6.6% this fiscal year from 7.7% last year, and Apoorva Javadekar of Muthoot Fincorp said rate hikes are too costly now to defend the rupee.
Which sectors are 'more vulnerable' to tariffs?
Pasricha said sectors exposed to both US tariffs and Middle East conflict have been hit hard even as overall macro indicators stay resilient, though oil prices above $90 a barrel could prompt rate increases in the second half of the fiscal year.
Does a weak rupee help any Indian industry?
Yes — several Indian industries benefit. IT services and export-focused pharmaceutical companies gain because they earn revenue in dollars but pay costs in rupees, improving margins. Specialty chemicals firms with dollar-denominated contracts also profit, as do metals and commodity exporters like steel, aluminum, and copper producers, who gain pricing advantages in international markets.
How does slowing growth show up for job seekers?
Job seekers face a cooling hiring market: employment growth hit its weakest pace in the current six-month hiring sequence, with recruitment for both manufacturers and service providers dropping to its lowest level since December 2025, as firms found existing staff sufficient to handle unchanged business volumes.
Source: economictimes.indiatimes.com