The Reserve Bank of India will likely tighten monetary policy in coming months, bringing it in line with regional peers that have turned more hawkish in response to inflationary pressures stemming from the Middle East conflict, economists said.
The expectations follow Governor Sanjay Malhotra‘s signal Friday that policymakers could raise interest rates if inflation pressures become more generalized and persistent. The central bank also lifted its inflation forecast for the fiscal year ending March 2027 to 5.1% from 4.6%, after leaving benchmark rate unchanged at 5.25%.
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The RBI’s commentary on inflation “opens the door for rate hikes in the next meeting” in August, according to Pranjul Bhandari, chief India economist at HSBC Holdings Plc. That would mark the RBI’s first rate hike since February 2023.
Following Friday’s policy decision, Bhandari brought forward her forecast for tightening and now expects rate increases in August and October, instead of in the final three months of 2026 and the first quarter of 2027.
“We believe inflation will eventually be even higher than the RBI is forecasting,” especially as the risk of a sub-par monsoon gathers pace, she added.
