RBI likely to hold rates in August, maintain hawkish tone as inflation risks persist: Economists

Despite expectations of a pause in August, the majority of respondents see the policy rate moving higher over the course of FY27. Most participants expect at least two rate hikes during the fiscal year if inflationary pressures intensify.

“The RBI is expected to maintain a hawkish pause, balancing resilient domestic growth with supply-led inflation. Since inflation is largely driven by external shocks rather than demand, keeping rates unchanged allows the RBI to assess evolving risks like monsoon developments and geopolitical disruptions before taking further action,” said Balasubramanian R, head of treasury at Dhanlaxmi Bank.

Most respondents expect no change in the central bank’s inflation forecast despite the recent spike in crude oil prices, although a few foresee an upward revision if geopolitical tensions persist.
Balasubramanian expects the RBI to raise its FY27 retail inflation projection to 5.1 per cent, citing imported inflation risks from higher energy prices.

Expectations on growth projections also remained divided. Some economists believe resilient domestic demand could prompt a modest upward revision in the FY27 GDP growth forecast, while others expect no change. A few anticipate a slight downgrade due to weak global demand, higher energy costs and geopolitical uncertainty.

Gaura Sengupta, economist at IDFC FIRST Bank, said the inflationary pressures are largely supply-driven and therefore may not warrant an immediate monetary policy response.

“The risk to inflation is supply-side led. Monetary policy is not the appropriate tool as it works via the demand side. Fiscal policy will be the main response to manage inflation pressures,” she said, while adding that the RBI is likely to reiterate that it only seeks to curb excessive volatility in the rupee rather than target a specific exchange rate.