The Reserve Bank of India is expected to keep policy rates unchanged in the upcoming Monetary Policy Committee meeting, although its communication may turn more hawkish as rising oil prices and a weaker rupee complicate the inflation outlook, according to an economist at HSBC. 

Pranjul Bhandari, HSBC’s chief India economist and macro strategist, projects a gradual tightening with about two rate hikes beginning in the fourth quarter of 2026 rather than an aggressive tightening cycle, as per reports.

Bhandari said the RBI’s updated forecasts will provide clear indications of how policymakers view the impact of the ongoing energy shock.

At its previous review, the central bank used a baseline oil assumption of about $85 a barrel and an alternative scenario of $95.

The HSBC economist now believes that the higher oil assumption will be the RBI’s base case, which would push inflation projections higher closer to 5 per cent up from the earlier projection of 4.6 per cent.

“Inflation is rising, which argues for higher rates, while growth is slowing, which argues against rate hikes,” Bhandari said, calling it “the hardest situation for a central bank.”

She warned that elevated oil prices and a possible El Nino could act as headwinds for growth, inflation control, the fiscal deficit and the current account.

A recent report from CareEdge Ratings said inflationary concerns have intensified due to projected below‑normal monsoon and recent retail fuel price hikes.

Sharp rise in WPI inflation also raises the risk of a faster second-round pass-through to consumer prices, it said, adding that the current uptick in inflation is a supply shock and not demand driven.

It projected FY27 GDP growth at 6.7 per cent assuming crude oil averaging USD 90/bbl. However, prolonged conflict and oil prices around $110/bbl could lower growth closer to 6 per cent.