No need for a rate hike unless inflation spikes: Economists

Mumbai: Bank economists have told the Reserve Bank of India (RBI) at a pre-policy meeting that there is no immediate need to either raise the repo rate or change the stance, provided inflation remains within the central bank’s tolerance band, multiple participants in the discussions told ET.

They also added that RBI has alternative tools to manage currency pressures and is unlikely to resort to a rate hike, unless the impact becomes visible in inflation, one economist said.

Discussions at the meeting were largely centred on the war, the risk of a pick-up in inflation, and the expectation of a global growth slowdown, another economist who attended the meeting told ET.

“Inflation forecasts by participants ranged from 3.5% to 5%, depending on where they see oil prices to average,” said an economist who participated in the discussions. “No one in the meetings suggested a rate hike or even a change in stance, as there is little clarity on how the situation in West Asia will evolve.”

The central bank’s monetary policy committee (MPC) is scheduled to announce its first rate decision of FY27 on April 8.

The meeting with economists comes in the backdrop of the West Asia war, rising crude oil prices and inflationary pressures. Brent crude prices saw a record surge in March, rising by roughly 60-64% compared with February levels, according to Reuters, and have traded between $110 and $120 per barrel since the war broke out.

Last Resort
“To the extent the ongoing energy shock does not translate into CPI inflation breaching the target durably, we believe the RBI MPC is unlikely to resort to rate hikes,” said a Barclays report.

RBI in its February 2026 policy held a status quo on repo rate at 5.25%. The central bank has reduced the repo rate by 125 basis points since February 2025.

Calls for a status quo are also emerging amid deep uncertainty over the duration of the US-Israel war on Iran.

Economists say the impact will largely depend on how long the war lasts, making it difficult for market participants to assess the scale of the shock or frame appropriate policy responses.

“More than the current inflation print, it is the outlook on how the situation would evolve in West Asia which would determine the policy decision on rates,” ICICI Bank said in a report early March.

“Liquidity will remain the most important variable in the interim before we have much more clarity on energy markets and thus, we should see an extended pause for now.” Retail inflation stood at 2.75% in January, while GDP in Q2FY26 climbed 8.2%. RBI in its February policy projected inflation in Q1 and Q2 of FY27 at 4% and 4.2%, while GDP of Q1 and Q2 FY27 is projected at 6.9% and 7%, respectively.