The Reserve Bank of India is not expected to increase interest rates at the upcoming Monetary Policy Committee meeting unless crude oil prices persist above $100 per barrel. An HSBC Global Investment Research report stated that with oil likely averaging $80 per barrel in 2026, no rate hikes are anticipated. The report highlighted that defending the rupee through interest rate adjustments could be costly if the growth impact of higher oil prices escalates rapidly.
The RBI’s three-day policy meeting, scheduled from April 6 to April 8, will be the first since the recent energy shock caused Brent crude to hover around $100 per barrel in March. Following the RBI’s move on March 27 to tighten onshore banks’ net open foreign exchange positions, speculation arose about a potential interest rate defense for the rupee. However, HSBC dismissed this notion, emphasizing that the threshold for rate hikes remains high.
The report also pointed out that the current energy shock differs from past oil price fluctuations due to not only higher prices but also constraints on energy sources’ quantity, compounded by quota systems affecting downstream sectors. HSBC cautioned that if the shock persists, the drag on growth could surpass the inflation impact, resembling the pandemic era more than the 2022 oil shock.
According to HSBC’s model, if oil prices stay below $100 per barrel, inflation is likely to remain within the RBI’s 6% upper tolerance band under its flexible inflation targeting framework. However, sustained oil prices above $100 per barrel could push inflation beyond 6%, potentially prompting rate increases. The report advised policymakers to learn from the pandemic experience and avoid stimulating demand before resolving supply disruptions to prevent high and persistent inflation.
HSBC recommended maintaining the fiscal deficit close to FY26 levels and suggested that raising petrol and diesel prices could help manage fiscal slippage effectively.
