Yes Bank expects the Reserve Bank of India to maintain interest rates amid ongoing supply shocks driving inflation, with cautious signals from policymakers due to global uncertainties and recent geopolitical tensions.
Yes Bank expects the Reserve Bank of India to keep interest rates unchanged for now, arguing that the recent rise in inflation is still being driven mainly by supply shocks rather than a broader price spiral. The bank said the central bank is likely to remain in a “wait-and-watch” mode because the recent disruptions have not yet fed through into wider second-round effects, where higher costs spread across more parts of the economy.
The view comes as the RBI faces a tougher inflation backdrop. In the bank’s assessment, headline wholesale price inflation for July eased slightly to 9.8 per cent from 9.9 per cent in June, broadly in line with market expectations, while manufacturing input costs remained firm. Yes Bank said it expects wholesale price inflation to average 9.0 per cent for the year, with consumer inflation at 4.8 per cent.
The main risk, according to the note, is whether tensions in West Asia continue to push up manufacturing input costs and eventually spill over into consumer prices. The bank also said it expects the government to avoid passing on additional fuel under-recoveries to consumers, which could otherwise add to retail inflation. Even so, it warned that most global commodity prices stayed elevated in July and have remained firm into August.
The RBI has also signalled caution. Hindustan Times reported that the central bank is projecting slower growth and higher inflation as it weighs the impact of the West Asia conflict, while Governor Sanjay Malhotra has said it is too early to discuss a rate increase because consumer prices have not been broadly affected. The Indian Express reported that Malhotra sees second-round effects from the conflict as the real concern, while recent Monetary Policy Committee minutes show policymakers kept rates on hold and maintained a neutral stance amid global uncertainty.
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