Reuters Poll: RBI Expected to Hold Interest Rates Through 2026

Reuters Poll: RBI Expected to Hold Interest Rates Through 2026

The Reserve Bank of India is expected to keep its benchmark policy rate unchanged at 5.25% through the remainder of 2026, according to a Reuters poll of economists, as concerns over economic growth outweigh pressure from higher inflation, elevated energy costs and rupee weakness.

The survey indicates that most economists expect the central bank to maintain its current policy setting at the next Monetary Policy Committee meeting and avoid raising borrowing costs during the remaining months of the year.

The outlook represents a shift from earlier expectations that persistent oil-price pressure and currency volatility could force the RBI to increase rates before the end of 2026. (Reuters)

Most Economists Expect No Change in August

The Reuters survey, conducted between July 21 and July 27, included 72 economists.

Of those surveyed, 68 expected the RBI to leave the repo rate unchanged at 5.25% at its August policy meeting. Only four economists forecast a 25-basis-point increase.

The strong consensus suggests that financial markets are unlikely to see an immediate change in India's benchmark interest rate unless inflation or external-sector conditions deteriorate significantly. (Reuters)

Repo Rate Expected to Stay at 5.25%

The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks.

Changes in the repo rate can influence:

• Home-loan rates

• Business borrowing costs

• Vehicle finance

• Bank deposit rates

• Bond yields

• Consumer spending

• Corporate investment

• Financial-market liquidity

Keeping the rate unchanged would provide greater stability for households and businesses while allowing the RBI to assess the impact of earlier monetary-policy decisions.

Growth Risks Influence RBI Outlook

Economists expect the central bank to remain cautious about increasing interest rates because higher borrowing costs could weaken domestic demand and investment.

India's economic growth is forecast to slow to approximately 6.6% in the current financial year from 7.7% in the previous year, according to the Reuters poll.

Although growth remains relatively strong compared with many major economies, the slowdown creates an argument against tightening monetary policy prematurely. (Reuters)

Middle East Conflict Adds Economic Uncertainty

The continuing conflict in the Middle East has increased uncertainty around energy prices, international trade and global economic growth.

India is particularly exposed to higher crude-oil prices because it imports most of its petroleum requirements.

A prolonged increase in energy costs can weaken growth by raising expenses for businesses and households.

For the RBI, this creates a complicated policy balance. Higher oil prices can increase inflation, but raising interest rates may do little to reduce energy costs while potentially slowing economic activity.

Inflation Rises Above RBI Target

India's consumer inflation increased to 4.38% in June 2026, moving above the RBI's 4% medium-term target for the first time since January 2025.

The rise was driven by pressure from food and fuel prices, including the effects of higher global energy costs.

Economists expect inflation to average around 4.8% during the current financial year, according to the Reuters survey. (Reuters)

Although inflation is now above the central bank's target, it remains within the RBI's formal tolerance band of 2% to 6%.

Rate Increase Seen as Premature

Economists generally believe the current inflation environment does not yet justify a rate increase.

The RBI may be more likely to consider tightening if inflation remains persistently elevated or moves closer to the upper end of its tolerance range.

Several economists surveyed suggested that inflation would need to remain above 6% for a more forceful monetary-policy response to become necessary. (Reuters)

Temporary increases driven primarily by energy or food prices may not produce an immediate policy reaction if underlying demand remains manageable.

Rupee Weakness Complicates Policy

The Indian rupee has faced pressure from higher oil prices, foreign capital flows and broader dollar strength.

Currency weakness can increase the domestic cost of imported commodities, including crude oil, natural gas and industrial inputs.

This can contribute to imported inflation and widen India's trade deficit.

However, economists expect the RBI to avoid using interest-rate increases as its primary tool for defending the currency because higher rates could damage growth without guaranteeing sustained rupee appreciation.

RBI Uses Other Tools to Support Rupee

The central bank has several mechanisms available to manage excessive currency volatility.

These include:

• Foreign-exchange market intervention

• Dollar sales through state-owned banks

• Rupee liquidity management

• Foreign-exchange swaps

• Measures to attract overseas capital

• Banking-system liquidity operations

The RBI has already taken steps to improve capital inflows and limit disorderly currency movements while keeping the policy rate unchanged. (Reuters)

Earlier Rate-Hike Expectations Fade

A Reuters survey conducted in May had found that a majority of economists expected at least one rate increase by the end of 2026.

At that time, concerns were growing over crude-oil prices, rupee depreciation and weak foreign capital inflows.

The latest poll represents a meaningful change in expectations, with economists now placing greater emphasis on slowing growth and the economic impact of global uncertainty. (Reuters)

RBI Held Rate Steady in June

The Monetary Policy Committee unanimously held the repo rate at 5.25% in June and maintained its neutral policy stance.

RBI Governor Sanjay Malhotra said policymakers wanted greater clarity before changing rates and would continue to base decisions on incoming economic data.

The June decision was correctly predicted by most economists surveyed by Reuters. (Reuters)

Neutral Stance Gives RBI Flexibility

A neutral monetary-policy stance allows the central bank to move rates in either direction depending on economic conditions.

The RBI could raise rates if inflation becomes persistent and broad-based.

It could also consider easing if economic growth weakens sharply and inflation pressures moderate.

For now, maintaining a neutral stance allows policymakers to respond flexibly rather than committing in advance to either tighter or easier policy.

Borrowers Could Benefit From Rate Stability

An unchanged repo rate would provide greater predictability for borrowers.

Banks may still adjust lending rates depending on deposit costs, credit demand and liquidity, but the absence of an RBI rate increase reduces the likelihood of an immediate broad rise in borrowing costs.

Rate stability could support:

• Housing demand

• Automobile purchases

• Corporate investment

• MSME borrowing

• Consumer credit

• Infrastructure financing

• Working-capital requirements

• Business expansion

This could help protect domestic economic momentum during a period of global uncertainty.

Deposit Competition May Continue

Even without a policy-rate increase, deposit rates may remain elevated because banks continue competing for household savings.

Credit growth has periodically outpaced deposit expansion, encouraging lenders to offer more attractive term-deposit rates.

As a result, bank funding costs may remain under pressure even while the repo rate stays unchanged.

This could affect net interest margins across the banking sector.

Bond Markets Gain Greater Visibility

A stable interest-rate outlook generally provides greater clarity for government and corporate bond investors.

If the RBI holds rates through 2026, bond yields may become more sensitive to inflation data, government borrowing and global interest-rate movements than to expectations of immediate domestic tightening.

However, higher oil prices or a sharp weakening of the rupee could still push yields upward.

Investors will therefore continue tracking both domestic and global indicators.

Corporate Borrowing Costs Could Remain Stable

Businesses planning capital expenditure or refinancing could benefit from a prolonged pause in policy rates.

Stable borrowing costs can support investment decisions across:

• Manufacturing

• Infrastructure

• Real estate

• Renewable energy

• Automobiles

• Technology

• Logistics

• Consumer industries

However, individual borrowing rates will continue to depend on credit quality, market liquidity and bank funding costs.

Risks to the Rate Outlook

The expectation of unchanged rates is not guaranteed.

Several developments could force the RBI to reconsider its policy stance:

• Inflation remaining above expectations

• Another sharp rise in crude-oil prices

• Significant rupee depreciation

• Stronger-than-expected consumer demand

• Persistent food-price inflation

• Higher global interest rates

• Large foreign capital outflows

• Supply-chain disruptions

The central bank has repeatedly emphasised that policy decisions will remain data-dependent.

What Investors Should Watch

Investors should closely monitor:

• August Monetary Policy Committee decision

• Consumer inflation

• Food and fuel prices

• Crude-oil movements

• Rupee exchange rate

• Economic growth data

• Foreign portfolio flows

• Banking liquidity

• Government bond yields

• RBI policy commentary

These indicators will determine whether the current consensus of unchanged rates remains intact.

Outlook

The Reuters poll suggests that the RBI is likely to prioritise economic stability and growth while monitoring inflation rather than responding immediately with higher interest rates.

A 5.25% repo rate through the end of 2026 would give the central bank more time to assess the effects of elevated energy prices, global conflict and weakening external demand.

However, policymakers will remain alert to signs that inflation is becoming persistent or spreading beyond food and fuel.

The balance between supporting growth and protecting price stability will continue to define India's monetary-policy outlook.

Conclusion

The expectation that the RBI will maintain its benchmark interest rate at 5.25% through 2026 reflects economists' belief that growth risks currently outweigh the need for immediate monetary tightening.

Although inflation has risen above the central bank's 4% target and the rupee remains under pressure, most economists believe a rate increase would be premature while economic momentum is slowing and global uncertainty remains elevated.

The RBI is therefore expected to rely on liquidity management, currency intervention and other policy tools while keeping borrowing costs stable.

Future policy decisions will depend heavily on inflation, energy prices, rupee movements and the strength of domestic economic growth.