RBI's room to keep rates unchanged narrows

An industry report said the Reserve Bank of India has less room to keep policy rates unchanged after Brent crude rose above $100 and India’s 10‑year yield topped 7%.

The report noted the rupee has depreciated by nearly 1% over the past two weeks, foreign institutional investor selling has resumed and India’s 10‑year bond yield has breached 7%, even as foreign currency non‑resident deposits have helped lift reserves to about $800 billion.

Brent above $100

The report said the latest escalation in the Middle East pushed Brent above $100 per barrel and that contemporaneous rate moves at major central banks have tightened global financial conditions. It added that rising commodity inflation and higher US Treasury yields have narrowed room for RBI policy in the near term.

The note flagged a mix of positives and risks: strong credit growth, robust auto sales and large food‑grain stocks on the one hand; moderating consumption indicators, falling urban wages, a monsoon deficit and weaker rural sowing on the other. It also said FCNR inflows of roughly $127 billion have boosted buffers but may reverse over a three‑to‑five year horizon.

Kunal Vora, head of India equity research, said: "India's macro‑outlook is sensitive to oil prices, and the latest escalation in the Middle East is a negative."

The report said if Brent remains above $100 through December 31, 2026, pressure on the RBI to tighten would intensify; if oil retreats below $80 by that date, the central bank’s flexibility would improve.