Summary of this article
SBI Research expects RBI to keep rates unchanged.
Rising crude prices and weak rupee raise inflation.
RBI may use liquidity tools instead of rate hikes.
The Reserve Bank of India (RBI) is likely to maintain its current rates at its next Monetary Policy Committee (MPC) meeting this June, notwithstanding the renewed inflationary pressures on account of higher crude oil prices, depreciation of the rupee, and other geopolitical risks, according to a report by SBI Research.
The report said that inflation risks have increased in recent months, but consumer price inflation (CPI) is still expected to remain within the RBI's tolerance band. SBI Research has maintained that the central bank may continue to keep rates unchanged and use other measures to deal with emerging challenges.
Inflation Risks Have Increased
According to the report, inflationary pressures have increased due to both domestic and global factors. SBI Research has projected CPI to remain above 5 per cent over the next three quarters and estimated average inflation for FY27 at 5 per cent.
A key concern has been imported inflation. The report says that petrol and diesel prices increased by around Rs 7.50 per litre in May 2026 following a rise in global crude oil prices. Fuel price increase alone could add 35-40 basis points (bps) to inflation. Imported inflation is expected to rise to around 7.30 per cent in May from 6.34 per cent in April. The report added that a potentially below-normal monsoon could push up food prices.
Why SBI Expects A Rate Pause
Despite these risks, SBI Research expects RBI to keep the repo rate unchanged. The report has argued that current inflation pressures are mainly being driven by global developments, including tensions in West Asia and higher commodity prices, rather than strong domestic demand.
Instead, the report has suggested that RBI may use liquidity measures, short-term interest rate tools and market operations, such as Operation Twist. It has added that future policy decisions are likely to depend on incoming data.
Rupee Depreciation Remains In Focus
The report has also highlighted the weakening of the rupee. The report said that currency fell from around Rs 90 to Rs 95 against the dollar within 152 days and touched Rs 96.83 per dollar on May 20. The pace of depreciation has not reflected India's economic fundamentals. SBI Research said that foreign exchange reserves of around $680 billion remain sufficient to manage sharp movements in the currency market.
The report has projected gross domestic product (GDP) growth of 7.50 per cent in FY26 and 6.60 per cent in FY27, while cautioning that geopolitical developments, commodity prices and weather conditions remain key risks to the outlook.
