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RBI Faces Tricky Rate Hike Decision Amidst Rising Inflation and Global Volatility
M
Moneycontrol•03-10-2026, 08:21
RBI Faces Tricky Rate Hike Decision Amidst Rising Inflation and Global Volatility
- •Oil prices have hardened significantly, with Brent crude at $103 a barrel and India Basket at $116 a barrel, exceeding the MPC's $90 barrel assumption.
- •The US Federal Reserve and other central banks have hiked rates due to inflation concerns, leading to tighter global monetary policy and a narrowing US-India yield gap.
- •Inflation dynamics show increasing generalization, with 36.7% of Headline CPI items now showing 4%+ inflation (up from 31% in June) and core inflation momentum picking up.
- •The RBI is expected to hike rates by 25 bps in October due to broad-based price pressures, but its policy stance is unlikely to change given global volatility.
- •A significant liquidity surplus, with WACR at 5.08% (below the 5.25% signaling rate), poses a challenge, potentially diluting the impact of a rate hike and raising questions about the RBI's timing.
Key Questions Answered
Price pressures are becoming more broad-based, with strong momentum in food and core inflation alongside rising input costs and a higher percentage of items showing inflation of 4 percent and above.
No, the RBI's stance is unlikely to change because global conditions remain volatile and uncertain.
Liquidity remains in surplus despite various absorption tools, pushing the Weighted Average Call Rate well below the signaling rate, which raises concerns that the impact of a rate hike could be lost unless liquidity overhang reduces.
