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Will RBI Hike Interest Rates to Save the Rupee? Economists Weigh In
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CNBC TV18•12-10-2026, 18:23
Will RBI Hike Interest Rates to Save the Rupee? Economists Weigh In
- •India's currency and bond markets face mounting pressure, forcing the Reserve Bank of India to weigh aggressive rate hikes against targeted foreign exchange measures.
- •Recent RBI actions to curb short-selling provided a temporary 1% boost to the rupee, but analysts remain cautious about the medium-term outlook.
- •Economists expect further monetary tightening of 75 to 100 basis points to manage real interest rates and rising retail inflation, which hit 5.54% in September.
- •Government bond yields have climbed nearly 50 basis points since September due to shifting banking liquidity expectations and rising global borrowing costs.
- •Experts emphasize that monetary policy alone cannot fix external pressures, suggesting fiscal measures and capital flow incentives may be needed.
Key Questions Answered
The Reserve Bank of India introduced measures to curb short-selling and excessive hedging in the foreign exchange market, making certain foreign exchange transactions more expensive to discourage bets against the rupee.
Government bond yields have climbed nearly 50 basis points since September 1, driven by changing expectations about banking system liquidity, alterations in the cash reserve ratio, and rising global borrowing costs.
Economists expect further monetary tightening, with projections varying from another 75 to 100 basis points of rate increases or two to three more hikes in the current cycle to bring the repo rate to around 6-6.25%.
