RBI Rules Out Off-Cycle Rate Hike Amid Rupee Pressure: Report Cites Official Sources
RBI Rules Out Off-Cycle Rate Hike Amid Rising Oil Prices and Rupee Pressure
The Reserve Bank of India (RBI) has reportedly ruled out an off-cycle rate hike, despite growing concerns over crude oil prices and the pressure on the rupee due to escalating tensions in the Middle East. According to a CNBC-TV18 report on Friday, the RBI does not currently appear inclined to use interest rates as a tool to defend the currency.
Key Factors Guiding RBI's Monetary Policy
The RBI remains focused on balancing inflation and growth under its flexible inflation-targeting framework. Sources close to the RBI have indicated that the central bank continues to be guided by this framework, which considers both inflation and economic growth while setting monetary policy. This approach suggests that the RBI is prioritizing maintaining a stable economic environment over using interest rates to manage currency volatility.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Inflation Remains Within RBI's Comfort Band
Retail inflation remains within the RBI's comfort band, with April CPI inflation coming in at 3.48 percent. The RBI's own forecast for FY27 inflation stands at 4.6 percent, which is also within the mandated range. Favourable base effects could keep CPI inflation even lower in FY28, according to sources.
RBI's Projections for FY27 and FY28
The RBI's Monetary Policy Report estimates that even if average crude oil prices rise to $95 per barrel in FY27, CPI inflation is likely to average around 5 percent, while economic growth may remain at 6.7 percent. This suggests that the RBI is confident in its ability to manage inflation and maintain economic growth despite rising oil prices.
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
RBI's Next Monetary Policy Announcement
The RBI's next scheduled monetary policy announcement is due on June 5. However, it is worth noting that the central bank had earlier carried out an off-cycle policy move in May 2022.
| Option | Bloomberg Report | CNBC-TV18 Report |
|---|---|---|
| Off-Cycle Rate Hike | Considering | Ruled out |
| Currency Swaps | More swaps | No mention |
| Raising Dollars | Raising dollars from investors | No mention |
| RBI's Next Monetary Policy Announcement | June 5 | June 5 |
Note: The RBI's next scheduled monetary policy announcement is due on June 5, as per both reports.
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