Controlled retail and core
inflation in India are prompting some economists to push back
expectations of any immediate interest rate hikes, reversing
earlier calls for tighter policy to support the rupee and
contain inflation.
Retail inflation rose to 4.38 per cent in June, breaching the
Reserve Bank of India’s 4 per cent target for the first time in 17
months, but averaged 3.9 per cent in the April-June quarter. Core
inflation was estimated at about 4 per cent in June, economists said.
This could mean that inflation for the full year could
average 4.7 per cent this fiscal year, lower than the 5.1 per cent projected by
the Reserve Bank of India in its June policy, Citi economists
said in a note dated Monday.
“RBI will likely reduce its headline inflation forecast by
around 20 basis points in August, reducing the need for an
immediate rate hike,” said Citi’s chief India economist, Samiran
Chakraborty.
“Future rate hikes might happen only if core inflation
sustains above 4.5 per cent, which is unlikely to happen soon and hence
we do not foresee a rate hike in 2026,” Chakraborty added.
The brokerage was expecting rate hikes of 25 basis points
each in August and October earlier.
Interest rate swap markets have already started to reflect
the probability of stable to mildly higher interest rates.
The one-year overnight indexed swap rate was reflecting 50
basis points of hike in this financial year, compared to 125
basis points prior to the June meeting.
SBI Economic Research, which was earlier expecting 25 bps of
rate hikes, now expects the RBI to maintain status quo through
this financial year, with inflation averaging 5 per cent.
ANZ has reversed its August rate hike call and now expects a
status quo, saying the monetary policy committee has room to
wait and reassess inflation risks.
In June, the RBI had maintained status quo on rates with the
minutes of the meeting showing that most rate panel members did
not see the need for a pre-emptive hike.
While keeping rates unchanged, the RBI announced measures to
attract dollar inflows by subsidising overseas deposits and
external borrowing by state-run companies and banks.
STCI Primary Dealer has also dropped its forecast for a rate
hike this year, saying the central bank is likely to treat the
recent rise in inflation as a temporary supply shock and avoid
tightening policy in response.
Published on July 14, 2026
