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The Reserve Bank of India may delay any repo rate hike after an interim peace deal between the US and Iran improved the global backdrop, prompting economists to push back their expectations for policy tightening. The change in outlook follows a sharp fall in crude oil prices, which had earlier raised inflation concerns.
After the June 5 policy review, when the Monetary Policy Committee left the repo rate unchanged at 5.25%, most economists had expected the panel to begin raising rates in October-December. Some had even expected the tightening cycle to start in August because of rising inflation risks from higher energy and food prices. That view has since shifted, with most now expecting rate hikes only in October-March, while some see no hike in 2026 at all.
Global crude oil prices have eased sharply after the interim peace deal between the US and Iran on June 15. Brent crude had risen to a near four-year high of $122 per barrel in April as the war in West Asia intensified, but has since fallen to below $80 per barrel after the announcement of the interim deal.
“Given the recent rapprochement between the US and Iran and the fall in crude oil prices since the June meeting, some of the commentary of the MPC may be somewhat obsolete, and a more relaxed MPC may convene for the August meeting,” Nomura said in a note. It added that it expects the MPC to stay on hold for the rest of the year.
State Bank of India Group Chief Economic Adviser Soumya Kanti Ghosh also said a rate hike by the MPC is unwarranted at this juncture. SBI expects the average crude oil price for the Indian basket to be around $85 per barrel, which it said would lead to savings of $25 billion in the oil import bill.
YES Bank said in a note that if oil prices remain around $70-$75 per barrel, and the government does not undertake any further pass-through, the need for the RBI to enter a hiking cycle reduces significantly. “Given current understanding, rate hikes are likely to be pushed out into H2 FY27 after having assessed the impact on food prices of the weak SW (South West) monsoon and its second-order impact,” it added.
Economists expect the RBI to lower its inflation forecast as well if oil averages around $80-$85 per barrel. In its June policy review, the central bank had raised its FY27 CPI inflation projection by 50 basis points to 5.1%, citing higher energy prices and expectations of below-normal monsoon rains.
Barclays said it would only worry about an earlier-than-expected rate hike if inflation showed sustained second-round effects, including cascading fuel costs feeding into broader transport fare increases or weaker-than-expected monsoon rainfall causing a food supply shock. Barclays expects a gradual 50 basis point hiking cycle in January-March.
Economists also said the foreign capital inflow measures announced by the RBI in June have reduced the need for higher rates to counter rupee depreciation. The steps included full hedging cost cover for banks raising fresh three- to five-year FCNR(B) deposits till September 30 and a concessional foreign exchange swap till September 30 to encourage external commercial borrowings by public sector undertakings. The rupee has appreciated more than 1% against the dollar since these measures were announced.
