The Reserve Bank of India (RBI) is likely to keep rates unchanged in the upcoming policy decision due to the hardening of government bond yields despite previous rate cuts. Economists suggest that the choice of eligible securities for Open Market Operations (OMO) could impact their effectiveness, even with unchanged liquidity injection levels. SBI Research indicated that the RBI is expected to maintain the status quo in the upcoming policy review.
Since the last policy update, India has seen a reduction in tariffs under the EU-India and US-India trade deals, benefiting from lower tariffs compared to other Asian countries. However, global economic uncertainty persists, with the SBI report highlighting the impact of uncertain conditions on economic stress with a delay of 3-4 months. Metal prices have rebounded following a recent sell-off, while factors like labor market slack and stagnant real incomes could prompt US Fed rate cuts.
Amidst global uncertainties, the Indian rupee has fluctuated between 89-92 per dollar over the past two months, depreciating by 5.8% against the USD since April 2025. The SBI report suggests that the RBI may need to conduct further OMO purchases worth up to Rs 50,000 crore in the remaining part of the fiscal year to support liquidity requirements amidst credit growth.
