India Viewpoint: RBI policy choices: Careful calibration

Research evidence excerpt

India Viewpoint: RBI policy choices: Careful calibration

ima facie, the orthodox playbook to manage an exchange rate issue is to increase WPI: Wholesale price index

policy rates, so as to make holding the rupee more attractive, while simultaneously GST: Goods and services Tax

lowering GDP growth rates in future, depressing import demand, and stabilizing the VRRR: Variable Reverse Repo rate

exchange rate. However, the efficacy of such moves in the past cycles has been mixed,

but the market pricing still indicates that the market would like to see in a world gripped

by global risks, energy shortages and capital outflows, than purely domestic overheating. BofA Global Research Reports

…but whether a small hike will work is questionable Title: Subtitle Primary Date

Further complicating a rate driven policy response is whether RBI should hike Author Published

aggressively or follow a more gradual approach. While the war itself is slowly de- India Viewpoint: The Rahul 26 May 2026

escalating and energy prices declining, a small hike may not necessarily make Indian problem of the Rupee: Bajoria

assets attractive enough to offset the weakness in the exchange rate itself. This makes Fixing the flow,

safeguarding the stock

the decision to hike rates a binary decision between no hike or a large hike (>50bp), as a (Part 3)

small move of 25bp may not make much sense, as it gives no comfort on either front. India Watch: RBI dividend Rahul 22 May 2026

at record INR 2.87trn; Bajoria

Exhibit 1: RBI decision tree limited fiscal cushion

RBI is likely to deliver a hawkish hold in the upcoming June policy, in our view India Watch: India growth Rahul 04 May 2026

meter – Resilient through Bajoria

the turbulence

RBI June policy India Watch: RBI April Rahul 22 April