India central bank interest rates are expected to remain unchanged this week, setting the Reserve Bank of India apart from global peers moving toward tightening, according to Reuters. A Reuters poll found that 68 of 72 economists expect the RBI’s Monetary Policy Committee to hold rates steady when it announces its decision on Wednesday.
Central banks in Europe, Australia, Indonesia, the Philippines, Singapore, South Korea and South Africa have raised borrowing costs since the U.S.-Israeli war on Iran began five months ago, Reuters reported. The Federal Reserve and Bank of Japan, however, have kept rates on hold during the same period.
India’s retail inflation accelerated to 4.38% in June, moving above the RBI’s 4% target for the first time in 17 months, according to Reuters. The figure remained within the central bank’s 2%–6% tolerance band, which allows flexibility to deal with short-term supply shocks. Core inflation, which excludes food and fuel, has stayed contained near 4%.
Citi’s chief India economist, Samiran Chakraborty, said in a note cited by Reuters that core inflation remained within the RBI’s comfort zone, adding that a rate hike was unlikely in 2026 unless it sustained levels above 4.5%. RBI Governor Sanjay Malhotra told the Hindu BusinessLine that signs of fuel prices feeding into broader inflation remained limited, Reuters reported.
However, a central bank survey in May showed inflation expectations had risen, and wholesale inflation climbed to 9.87% in June, Reuters reported. Axis Bank economist Tanay Dalal said the Monetary Policy Committee was likely to acknowledge risks of firmer inflation while maintaining a data-dependent, neutral stance, adding that wholesale price pressure typically passes through to consumer inflation within three to four months.
Interest-rate swap markets are currently pricing in roughly 75 basis points of rate hikes over the next 12 months, according to Reuters. The rupee’s slide to a record low ahead of June’s policy meeting had fuelled calls for a rate hike to defend the currency, but the RBI instead scrapped capital-gains tax for foreign holders of Indian government bonds and sweetened dollar deposit schemes for non-resident Indians, drawing nearly $40 billion in inflows.
Those measures sparked a brief rupee rally, though the currency has since faced renewed pressure as fresh Gulf hostilities pushed oil prices higher, Reuters reported. Trinh Nguyen, senior economist for Emerging Asia at Natixis, said pressure on the rupee would likely persist until the RBI raises rates to widen differentials with major economies, adding that while a hike was unlikely this week, prolonged delay would increase pressure on the central bank to act. The RBI’s cautious stance comes as other Indian financial institutions face separate scrutiny, including a recent penalty imposed on HDFC Bank’s MD and CFO.
No official statement on the rate decision had been issued by the Reserve Bank of India as of the report, with the announcement expected Wednesday.
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