RBI May Stay On Rate Pause Through FY27 Despite Hawkish Tone: SBI Research

New Delhi, Aug 21 (KNN) The Reserve Bank of India (RBI) is likely to maintain a prolonged pause on policy rates through FY27, supported by resilient economic growth and easing inflation, according to SBI Research.

The report said recent RBI communication reflected greater acknowledgement of risks, with policymakers adopting a more hawkish tone. However, underlying economic data did not yet warrant an immediate rate hike.

“Growth is most likely to remain robust as shown by all leading indicators,” SBI Research said, maintaining its view of a prolonged policy pause in FY27.

Inflation Outlook

Consumer Price Index (CPI) inflation stood at 4.45 percent in July, broadly in line with market expectations. Imported inflation also eased to 7.3 percent in July 2026 from 8.1 percent in June.

SBI Research expects inflation to rise to around 4.7 percent in August and could temporarily exceed 6 percent in October and November before moderating to around 5 percent in the fourth quarter of FY27, reported IANS.

Monsoon Conditions Improve

The report also highlighted improving monsoon conditions as a positive factor for the economic outlook.

Despite a rainfall deficit of around 40 percent in June, surplus rainfall in July and normal showers in August have narrowed the nationwide deficit to around 13 percent.

A positive Indian Ocean Dipole could also partly offset the impact of the ongoing El Nino, SBI Research said.

Kharif sowing remains around 2 percent below last year's level despite deficient rainfall in some major food grain producing states, suggesting improved irrigation coverage across states.

The report said markets should therefore attach greater weight to pragmatic policy action as economic and inflation conditions evolve.

Global Policy Challenges

Globally, central banks continue to face challenges in communicating monetary policy amid changing growth and inflation dynamics.

SBI Research also noted that the US Federal Reserve's efforts to smoothen the long end of the Treasury yield curve and increase government debt repurchases had contributed to a decline in longer-term yields.

(KNN Bureau)