New Delhi [India], June 6 (ANI): The Reserve Bank of India’s latest policy measures may shift the rupee narrative from depreciation pressure to inflows, with analysts expecting up to USD 50 billion from swap and borrowing windows, plus another USD 25 billion if India gets added to the Bloomberg bond index. However, with CPI projected to climb to 5.9 per cent in Q3 and real rates turning negative in H2FY26, the Monetary Policy Committee will likely deliver 50-75 bps of rate hikes unless oil prices ease and the monsoon plays out well.
ICICI Bank Global Markets said in its latest research report that the highlight of the policy is a concessional FX swap window for external commercial borrowings by PSUs and full hedging cost coverage for FCNR(B) deposits till September 30, 2026. Together with expanded access for NRIs/OCIs and restoration of the export proceeds realization period to 9 months, these steps should drive ~USD 50bn inflows and ease funding constraints for banks, pulling CD/CP rates lower and supporting corporate bonds.
On debt, the government cut capital gains tax and withholding tax on interest for government securities. RBI also expanded the Fully Accessible Route to include new 15-, 30- and 40-year tenors and removed limits under the general route. ICICI expects this, plus the tax cuts, to pave the way for Bloomberg index inclusion, unlocking USD 25bn more debt inflows. Markets reacted positively, with bond yields firming especially in the 5-year bucket and the INR gaining from recent lows.
Despite the inflows focus, MPC kept the repo rate unchanged at 5.25 per cent with a “Neutral” stance, voting unanimously. The committee noted global inflation and policy are more cautious, but domestic activity is holding up with Q4 growth at 7.8 per cent YoY. Still, RBI revised FY27 growth lower to 6.6 per cent from 6.9 per cent, citing higher oil prices, supply-side constraints, conflict disruptions and El Nino risks to agriculture. Inflation was revised up to 5.1 per cent for FY27, core to 4.7 per cent, with quarterly CPI at 4.2 per cent in Q1, 5.1 per cent in Q2, 5.9 per cent in Q3 and 5.4 per cent in Q4. Direct fuel price pass-through adds ~36 bps.
ICICI expects RBI to raise rates by 50-75 bps to bring inflation back to the 4 per cent target. “Each meeting is live and signs of generalization of price pressures could tilt the MPC to act earlier than later,” the report said. If oil stays near USD 100/bbl and El Nino weakens the monsoon, hikes could come sooner. If supply constraints ease and oil falls, the inflows from FAR expansion and FCNR swaps would give MPC more room to wait. For now, durable liquidity is supported by RBI dividend and seasonal currency trends, improving rate transmission. (ANI)
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