The Reserve Bank of India’s Monetary Policy Committee is likely to keep interest rates unchanged on June 5, following a significant drop in Brent crude prices that has alleviated inflation concerns. Emkay Global Financial Services report highlighted the positive impact of a 22% decrease in Brent prices on India’s external account outlook.
The Indian rupee has strengthened by 2% against the dollar, reaching Rs 95 per dollar from a recent high of Rs 96.96 per dollar on May 20, 2026. The report predicts that the reopening of the Hormuz strait could push Brent prices back to $75-80, offering relief to the rupee and supporting the RBI’s decision to maintain rates steady.
Despite a rise in inflation to around 4.5% due to increased petrol and diesel prices, the report suggests that the RBI is unlikely to raise rates. The expectation of a favorable rate environment supporting credit growth is reflected in the consensus Nifty EPS growth forecast of 14.2% for FY27, with banks playing a significant role.
Market volatility persists due to uncertainties surrounding a potential US-Iran deal and the reopening of the Strait of Hormuz. Liquidity conditions have tightened slightly, with surplus conditions contracting to about 0.2% of net demand and time liabilities after a $5 billion injection by the RBI through a rupee-dollar swap.
Deposit growth remains healthy at 12.2% year-on-year but lags behind credit growth. The report warns that the current incremental CDR at 105% is unsustainable, anticipating a moderation in credit growth despite potential improvements in deposit growth as liquidity conditions ease.
