This assessment by economists, despite some concerns about wholesale prices, inflationary pressures and rate increases by several other central banks, is driven by two key factors.
First, coordinated measures announced by the government and the RBI are expected to attract sizable foreign currency inflows, likely easing the pressure on the rupee. Second, the recent moderation in crude oil prices, after the US and Iran agreed to a broad peace framework, has reduced upside risks to inflation while also underpinning growth, economists said.
ET BureauCitibank has now withdrawn its forecast for two RBI rate hikes through March 2027, while Yes Bank and Canara Bank have pushed their rate-hike expectations to the second half of FY27.
Similarly, State Bank of India said the fall in oil prices and rupee appreciation can provide relief to imported inflation. Saugata Bhattacharya, external member of the monetary policy committee, told ET in an interview that growth could exceed RBI’s forecast of 6.6% in FY27.
Monsoon Impact
This is possible on account of a steeper decline in oil prices than what has been estimated, he said.
Madhavan Kutty G, Canara Bank’s chief economist, who earlier expected an increase as early as June, now believes ‘there are good chances’ of a hike in the October policy.
“The consumer price index-based inflation is projected at 4.2% for Q1, while for Q2, it is projected at 5.1%. So, the possibility of CPI reaching closer to 5.1% is only in Q3,” Kutty G said. “In this context, rate hike chances get pushed toward Q3 and there is a good chance of a hike in October as the entire southwest monsoon impact would be seen by then.”
The RBI has projected inflation for FY27 at 5.1%.
SBI did not forecast a near-term rate increase, but Citigroup and Yes Bank economists, who had earlier expected policy tightening to begin in the coming months, have now taken a view that any rate hike would now be deferred.
“If the oil prices sustain at around $70-75 per barrel, with the government not undertaking any further pass-through, the need for the RBI to move into a hiking cycle reduces significantly,” said Indranil Pan, chief economist, Yes Bank.
Brent oil is currently trading at $79 per barrel, according to Reuters. Oil prices were around $90 per barrel just ahead of the June policy, after reaching a peak of nearly $120 per barrel mid-May.
“A decline in oil prices and rupee appreciation may provide some respite to imported inflation and this may keep CPI under the RBI’s target range. Taking all these factors under account, we believe that to talk about rate hike is unwarranted at this juncture,” SBI said in a report on Monday.