Why RBI's Next Decision Could be Tricky After Rate Hold

Summary

Anubhuti Sahay, Head of India Economic Research at Standard Chartered Bank, discusses the RBI's rate hold and the focus on inflation projections and commentary. She sees upside inflation risks from El Niño and oil but expects a marginal downgrade in near-term forecasts with hawkish rhetoric. The baseline is no rate hikes, but risk of 50 bps+ hikes to attract capital flows exists. She is bearish on the rupee, expecting weakening after the CNR scheme ends in September due to fading capital flows and lack of fresh measures.

• RBI holds rates; market focuses on tone and first June 2027 inflation projection
• Anubhuti Sahay expects a marginal downward revision to near-term inflation with hawkish commentary
• El Niño and oil prices remain key upside inflation risks; December quarter inflation seen at 5.9%
• Baseline scenario is no RBI rate hikes; risk scenario of 50 bps+ hikes to support capital flows
• US Treasury yields staying elevated challenges capital flows into India
• CNR scheme flows supportive until September, but momentum expected to weaken thereafter
• Rupee outlook is cautious; year-end USD/INR forecast 96 with risk of weaker levels
• New government/RBI measures to attract capital could change the rupee story