NEW DELHI: The Reserve Bank of India’s Monetary Policy Committee (MPC) is expected to keep interest rates on hold on June 5, as a sharp correction in Brent crude prices has eased concerns around inflation, a report said on Monday.
The report from Emkay Global Financial Services noted that a significant improvement in India’s outlook for the external account over the past two weeks due to 22 per cent correction in Brent on hopes of a US‑Iran memorandum of understanding.
"We expect the RBI to remain on hold next week, which is positive for the consumption recovery story and the earnings cycle," the firm said. The Indian rupee has gained 2 per cent to Rs 95 per dollar after touching Rs 96.96 per dollar on May 20, 2026.
The report forecasted that the re-opening of the Hormuz strait should drive Brent back to $75-80 and provide considerable relief to the rupee and RBI to remain on hold over the next few quarters. It saw no need for the RBI to raise rates, even as inflation rose to roughly 4.5 per cent due to a roughly 7 per cent spike in petrol and diesel pump prices.
The firm expects a benign rate environment to support credit growth, which underpinned a consensus Nifty EPSg (EPS growth) of 14.2 per cent for FY27, with banks a substantial contributor. Markets remained volatile amid continued uncertainty around the timing of a potential US-Iran deal and the reopening of the Strait of Hormuz (SoH).
On liquidity, the report noted surplus conditions contracted to roughly 0.2 per cent of net demand and time liabilities after the RBI injected $5 billion through a rupee‑dollar swap. "We see no immediate cause for concern, once pressure on crude eases and, consequently, on the currency, the RBI should be able to restore liquidity conditions," the report noted.
Deposit growth remains healthy at 12.2 per cent year-on-year but unable to keep pace with credit growth. The incremental CDR (trailing 12M) at 105 per cent is unsustainable, and the firm expects credit growth to moderate going forward, even if deposit growth improves to roughly 13 per cent as liquidity conditions ease.