The Reserve Bank of India (RBI) is widely expected to keep its benchmark repurchase rate unchanged at 5.25% at its bi-monthly monetary policy meeting on Wednesday, August 5, 2026, as persistent inflation risks and ongoing geopolitical tensions in the Middle East continue to cloud the economic outlook. Analysts at Commerzbank expect the Indian central bank to maintain its current policy stance, citing that June Consumer Price Index (CPI) inflation rose 4.4% year-on-year, remaining within the RBI's 2-6% target range. However, Commerzbank cautioned that inflation risks remain tilted to the upside due to higher global commodity prices and a weaker monsoon season.
The bank also expects the Standing Deposit Facility (SDF) rate to remain at 5% and the Marginal Standing Facility (MSF) rate at 5.5%. The broad consensus across financial markets reflects a strong expectation of no policy change. According to the latest Reuters poll, 68 of 72 economists surveyed anticipated the RBI to leave its policy rates at current levels.
The central bank has maintained the status quo at all three policy meetings held so far this year, following a 25 basis point cut to the Repo Rate in December 2025, which brought the rate to its current level of 5.25%. At its June policy meeting, the RBI raised its inflation forecast for fiscal year 2026-27 to 5.1% year-on-year, up from the prior projection of 4.6%, attributing the revision to higher input costs including base metals, plastic and rubber, as well as rising commercial Liquefied Petroleum Gas (LPG) prices. The central bank also revised its real GDP growth forecast downward to 6.6% for the current fiscal year, from a previous estimate of 6.9%.
RBI Governor Sanjay Malhotra has signaled a cautious, data-dependent approach, stating at the June meeting that it is "prudent to wait for greater clarity to emerge." In a recent interview with Businessline, Malhotra reaffirmed the primacy of price stability in the RBI's mandate: "Our primary mandate is inflation and price stability. Therefore, we will do whatever is required first, to keep price stability and then, to see to what extent we can support growth." Market participants will closely monitor Governor Malhotra's commentary at Wednesday's meeting, particularly regarding the inflation trajectory and growth outlook amid the continuing geopolitical crisis. At the June meeting, Malhotra acknowledged that extended disruption in global supply chains and higher energy prices present dual risks to both inflation and growth, while asserting that the Indian economy is capable of withstanding these shocks "with minimum pain." Analysts at Axis Bank expect the Monetary Policy Committee (MPC) to adjust its language to acknowledge risks of firmer inflation and potential policy action ahead, while maintaining its data-dependent framework.
Investors will also pay attention to updates on the Foreign Currency Non-resident (FCNR) deposit scheme, announced at the June meeting to boost foreign fund inflows and support forex reserves. Under the scheme, commercial banks can raise funds via foreign currency deposits with full hedging costs borne by the RBI. Analysts at DBS Group Research noted that the flows picture is improving, with July seeing debt markets attract more than $2 billion in inflows, bringing fiscal year-to-date debt inflows to $7.7 billion.
Equity markets also recorded $1.5 billion in inflows following consecutive months of outflows. DBS also cited Governor Malhotra's remarks that banks had mobilized a cumulative $32 billion via swap windows to date, already surpassing the scale of inflows raised in 2013. DBS stated that their conservative estimate of $45 to $50 billion in total inflows under the special schemes could be overshot at the current run-rate.
On the currency front, the USD/INR pair retains a mildly bearish near-term bias, trading below the 20-day Exponential Moving Average (EMA) at 95.72. The 14-day Relative Strength Index (RSI) at 45 indicates neutral-to-bearish momentum. Key support levels are identified at the July 7 low of 94.80 and the June low of 94.15, while resistance is defined by the 20-day EMA at 95.73, with a break above 96.00 needed to extend any recovery.
Source: FXStreet, Commerzbank, Reuters, DBS Group Research, Axis Bank, Reserve Bank of India.
Source: fxstreet.com