RBI Holds Rates at 5.25%, Cites Moderate Core Inflation
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- RBI held its benchmark rate at 5.25% for a fifth straight time, even as retail inflation crossed its 4% medium-term target.
- Governor Sanjay Malhotra said core inflation 'remains moderate' at 3.7% (end of April) and is expected to decline after peaking in the December quarter, but flagged the outlook as 'hazy' due to monsoon, El Niño, geopolitics, and trade policy uncertainties.
- India's consumer inflation hit an 18-month high of 4.38% in June as oil prices surged, with the government partially passing on fuel price hikes since May.
- HSBC Global Investment Research projects inflation above 5% for eight months starting October and expects RBI to hike rates by 25 basis points each in October and December.
- India imports nearly 85% of its fuel needs via the Strait of Hormuz, making it among the countries most vulnerable to supply disruptions from the Iran war.
- India's current account and fiscal deficits widened in the quarter ended June, with persistent capital outflows making the rupee 'one of the worst performing Asian currencies.'
Why it matters: RBI is anchoring its patience to 3.7% core inflation, but HSBC projects inflation above 5% for eight months starting October, and India's 85% fuel import dependence via the Strait of Hormuz leaves the central bank exposed to any prolonged Middle East energy disruption.
