Bank of Baroda Sees RBI Rate Hikes Ahead Despite MPC Status Quo

Mumbai, June 2026: Following the latest monetary policy announcement, Bank of Baroda Chief Economist Madan Sabnavis said the Reserve Bank of India's decision to maintain the policy repo rate and monetary stance was largely in line with market expectations, but rising inflation could pave the way for rate hikes in the second half of the year.

According to Sabnavis, the inflation trajectory outlined by the Monetary Policy Committee (MPC) suggests increasing price pressures in the coming months, with inflation projected to rise to around 5.9%.

Inflation Outlook Signals Possible Rate Hikes

Commenting on the policy decision, Sabnavis noted that while the RBI has chosen to maintain the status quo for now, the inflation forecast points toward the possibility of one to two policy rate hikes during 2026.

He added that the impact of the monsoon season appears to have been factored into the central bank’s projections, helping moderate near-term inflation risks.

Growth Forecast Remains Resilient

The economist observed that the projected economic growth rate of 6.6% aligns broadly with expectations. However, he cautioned that persistent inflationary pressures and supply-chain challenges could affect both consumer spending and private investment activity.

Forex Measures Receive Positive Response

Sabnavis highlighted the RBI's recent initiatives aimed at attracting foreign exchange inflows as one of the most significant aspects of the policy framework.

Measures relating to:

• Foreign Portfolio Investment (FPI)

• External Commercial Borrowings (ECB)

• FCNR (B) deposits

were described as comprehensive steps designed to strengthen forex liquidity and support external sector stability.

According to him, the coordinated efforts between the government and the RBI have already received a positive response from the foreign exchange market.

Focus on Capital Flows

The economist noted that market participants will closely monitor whether these measures can reverse the trend of foreign portfolio outflows and improve investor participation, particularly in India's debt markets.

With inflation remaining a key concern and global uncertainties continuing to influence capital flows, future monetary policy decisions are likely to depend heavily on inflation trends and external sector developments.