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Informist, Thursday, May 21, 2026

 

NEW DELHI – The Reserve Bank of India is likely to start raising interest rates from June, economists at Standard Chartered Bank said. The central bank's Monetary Policy Committee is seen raising the repo rate, currently at 5.25%, by 50 basis points in the current financial year due to a higher inflation view and the rupee's sharp fall, the economists said.

 

"While the MPC has reiterated that its repo rate decisions are driven more by domestic growth and inflation dynamics than by the need to defend the currency, the sharper-than-expected pace of INR depreciation raises the risk of second-order effects on CPI and, in our view, strengthens the case for a hike," economists Anubhuti Sahay and Saurav Anand said in a report Thursday. 

 

Standard Chartered has raised its CPI inflation forecast for FY27 to 4.9% from 4.7?rlier. The RBI in April projected FY27 CPI inflation at 4.6%. Retail inflation rose to a 13-month high of 3.48% in April and is expected to rise further after oil companies raised pump prices of petrol and diesel.

 

"While inflation would likely remain within the MPC's mandated 2-6% target range, with 4% as the medium-term target, the risk of persistent inflation is, in our view, likely to trigger a policy response," the economists said. April CPI at 3.5%–-below the MPC's 4% medium-term target--can prove to be a constraining factor to the June rate hike view, they noted.

 

Sahay and Anand expect 50 bps of hikes, split equally between June and August. "However, if there is no hike in June, the repo rate could be hiked by 50 bps in August," the economists said. "We also see a risk of additional 25-50 bps of hikes in FY27 if inflation turns out to be higher than we expect due to continued pressure from commodity prices and INR weakness."

 

Bloomberg News Thursday reported that the Reserve Bank of India was considering several options to support the rupee, including a repo rate hike. Commerce Minister Piyush Goyal earlier in the day said the government was considering several steps to control the fall in the rupee.

 

The rupee has depreciated 6% against the dollar since start of the war in West Asia on Feb. 28, and is down 7% in 2026. The rupee fell to a record low of 96.96 against the dollar on Wednesday, driven by concern about widening current account deficit and persistently high energy import costs due to the war. 

 

A rate hike would help anchor sentiment and any second-order effects on the rupee and inflation, Sahay and Anand noted. "We also emphasise the urgent need for policy-makers to roll out interim measures to raise USD funding by incentivising banks and companies, and limit the import bill via price hikes and volume restrictions," the economists said.  End

 

US$1 = INR 96.20

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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