RBI Not Considering Off-Cycle Policy Rate Hike: Report

The Reserve Bank of India (RBI) is not considering an off-cycle rate hike to support the declining rupee.

The banking regulator is unlikely to hold an off-cycle monetary policy meeting to hike the repo rate, CNBC-TV18 reported on Friday.

The RBI is not in favour of using policy rates as a measure to support the rupee for now, the report said, citing sources.

Earlier, many experts and media reports had speculated that the central bank may raise repo rates to tighten liquidity in the market and control the weakening rupee.

The domestic currency is slipping to record lows almost every day as elevated crude oil prices are strengthening the dollar.

A weaker rupee increases the cost of imports, especially crude oil, fertilisers, and other essential commodities. This could push inflation higher at a time when oil prices have already surged sharply due to the West Asia conflict and disruption in supply routes.

The RBI has been intervening in the foreign exchange market by selling dollars to control excessive volatility.

The RBI is focusing on inflation management under the Flexible Inflation Targeting (FIT) framework instead of responding through interest rate hikes to stabilise the rupee, the report said.

Consumer Price Index (CPI), the retail inflation benchmark, stood at 3.48 percent in April. This reading is within the RBI’s targeted range of 4 percent, with a deviation of 2 percentage points on either side.

The RBI has projected inflation at 4.6 percent for the current financial year. In its monetary policy report, the central bank said that CPI could remain around 5 percent even if crude oil prices average around $95 per barrel in FY27. GDP growth is also expected to remain around the 6.7 percent mark.

At an event of the International Monetary Fund recently, RBI Governor Sanjay Malhotra said that monetary tightening would only become necessary if higher prices start feeding into wages, transport costs, and broader inflation across the country.