RBI likely to hold rates in June amid inflation uptick, external risks: Report

NEW DELHI: The Reserve Bank of India’s Monetary Policy Committee is likely to maintain a wait‑and‑watch stance at its June meeting and hold rates unchanged amid rising inflationary pressures and external volatility, a report said on Monday.

The report from CareEdge Ratings said inflationary concerns have intensified due to projected below‑normal monsoon and recent retail fuel price hikes.

A sharp rise in WPI inflation also raises the risk of a faster second-round pass-through to consumer prices, it said, adding that the current uptick in inflation is a supply shock and not demand-driven.

The report added that domestic growth outlook has also eased considerably as the economic impact of the prolonged conflict transmits through multiple channels.

Tone of the policy statement will be crucial, as the possibility of policy rate hikes towards the end of the year cannot be ruled out if the inflationary pressure prolongs, the ratings agency said.

Both global and domestic bond yields rose, and USD/INR has weakened considerably since the onset of the conflict.

The report further said future trajectory of the policy rate will depend on the MPC’s assessment of evolving inflation dynamics and whether current price pressures are transient or become entrenched in household expectations.

If conflict persists and inflation risks become entrenched in household expectations, rate hikes are possible by CY26-end.

The real policy rate is expected to remain below its long‑term average of 0.95 per cent for three quarters before converging to this by Q1 FY28, the firm forecasted.