RBI Likely to Pursue Rate Hikes Amid Commodity Price Surge

The central bank may implement a 25-basis-point increase in December, though a sharper 50-basis-point hike remains a possibility depending on the evolving inflation outlook. Consumer price inflation currently hovers near 6 percent, driven largely by elevated energy costs. While the RBI maintains a hawkish stance, Banerjee argues that interest rate adjustments are insufficient to stabilize the rupee against external headwinds like surging US bond yields and a dominant dollar.

Foreign portfolio outflows hit USD 8.6 billion by early October, reversing the inflows seen earlier this summer. Consequently, the USD/INR exchange rate could slide toward 97.5-98 by December unless the central bank intervenes aggressively. Global supply chain disruptions and increased freight costs have already pushed landed crude prices well above futures market indicators. With Brent crude potentially reaching USD 110-115 per barrel by year-end, the broader economy faces sustained production cost pressures. Despite these challenges, India’s status as a net refining surplus nation offers a buffer against localized petroleum shortages. In precious metals, while rupee depreciation may offer minor support for gold, high US real yields are expected to keep investment demand for coins and ETFs muted throughout the festive season.