റിസർവ് ബാങ്ക് പലിശ നിരക്ക് ഉയർത്താൻ സാധ്യത: ഒക്ടോബറിൽ നിർണ്ണായകമായ മാറ്റങ്ങൾക്ക് കളമൊരുങ്ങുന്നു

Summary

One expects the monetary policy committee to deliver a rate hike in October, but a calibrated 25 basis points, along with a change in the hitherto 'neutral' stance and guidance for a data-dependent policy response in the coming months.

Macro, financial markets and geopolitical conditions have witnessed a host of critical developments since the previous Reserve Bank of India (RBI) monetary policy committee (MPC) meeting in early August.

First, the prospects of a near-term resolution to the West Asia conflict, which had appeared plausible a couple of months back, have again faded. Brent crude prices have risen by about 23% since then, averaging over $95 per barrel and materially exceeding the RBI's oil price assumption of $90 per barrel for 2026-27. Globally, activity indicators have generally been resilient, while inflation staying elevated, if not inching higher.

Global meteorological organizations are also reporting that El Niño conditions are set to be the strongest on record, which could mean a global supply shock. Monetary policy has turned notably more hawkish globally of late, with the US Federal Reserve (Fed) delivering its first rate hike since 2023, joining its counterparts in Europe, Japan, Australia, New Zealand, Norway, Korea, Indonesia and the Philippines. The US dollar has further strengthened, with the dollar index rising 2% in September alone.

Back home, headline CPI (Consumer Price Index) inflation rose to a 20-month high in August, while elevated input cost pressures pushed WPI (Wholesale Price Index) inflation near 10%. There are also early signs of price pressures broadening, with nearly 40% of CPI items registering upticks above 4% year-on-year, up from about 22% in Q1. That said, core inflation excluding precious metals remains contained at around 3.3%, suggesting that underlying domestic price pressures are yet to become generalized.

The risk of food, fertilizer and energy shocks feeding into broader inflation dynamics has increased materially, given the heightened probability of persistent weather-related disruptions to both summer and winter crops, alongside continued tensions around key energy supply routes.

Headline GDP (gross domestic product) growth surprised markedly on the upside again in Q1 2026-27 at 7.8% (against the RBI's 7% estimate), buoyed by robust capital formation, consumption and exports. Industrial activity and investment intentions remain generally healthy, too.

Bank credit growth, at 18%, had been particularly strong. However, some high-frequency indicators present a more nuanced picture. For instance, the RBI's urban and rural consumer confidence prints are at three-year lows. Purchasing managers' indices (PMIs) too hit muti-year lows in Q2 and manufacturing capacity utilization stayed largely unchanged from the post-covid period. As of now, the RBI expects real GDP growth to fall below 7% in the coming quarters.

On balance, one expects the MPC to deliver a rate hike in October, but a calibrated 25 basis points, along with a change in the hitherto "neutral" stance and guidance for a data-dependent policy response in the coming months. Managing liquidity at an appropriate level is key for transmission of monetary policy signals. Following the FCNR (foreign currency non-resident) flows, system liquidity surplus has recently been near ₹5 trillion, compared with typically ₹2 trillion earlier this summer. The RBI, therefore, looks set to continue proactive liquidity-management operations.

Developments in the external sector, including the rupee, have been particularly significant of late. The FCNR scheme attracted a whopping $134 billion inflow, surpassing expectations by a huge margin and adding gunpowder to the RBI's kitty to support the currency, if needed.

Nevertheless, the rupee shed much of its recent gains in September, ending the quarter almost flat at over 96 per dollar, underscoring the complexity of the external environment. This is in stark contrast to the near-10% gain in the rupee within months of the previous FCNR scheme roll out in September 2013, which garnered only around $30 billion.

Indeed, global short-term yields have moved higher in line with higher policy rate expectations while longer-end yields have been hovering around decade highs primarily due to debt sustainability concerns. For example, the US-India 10-year and 30-year yield spreads have now narrowed to around 200 basis points, down from over 450 basis points around the start of the decade.

This combination of compressed interest-rate differentials and a deteriorating energy import bill is likely to keep pressure on the rupee, further strengthening the case for a hawkish RBI response.

In sum, the current balance of risks points to a calibrated rate hike and continued liquidity absorption. The MPC is likely to stay flexible and data-dependent amid an exceptionally volatile geopolitical backdrop, fluctuating commodity prices, and uncertainty over the global central bank policy path.

This uncertainty is neatly captured in the US, where market-implied odds of a US Fed rate hike in October dropped dramatically from over 70% to below 25% in four days in the last week.

Siddhartha Sanyal is chief economist and head of research at Bandhan Bank. Sudarshan Bhattacharjee and Gaurav Mukherjee contributed to this column. The views are personal.