Indian Rupee: RBI minutes temper rate-cut hopes – DBS

Radhika Rao at DBS Group Research highlights that Reserve Bank of India (RBI) minutes from the early-August meeting were more cautious than Governor Sanjay Malhotra’s public messaging. Most members adopted a neutral-to-cautious stance, with Deputy Governor Poonam Gupta firmly pushing back on rate-cut expectations. The inflation outlook remains conditional on monsoon performance, El Niño risks and geopolitical developments, keeping potential tightening risks alive.

Cautious RBI tone keeps tightening risk

"Across the ocean, RBI minutes from the early-August policy meeting, released late Wednesday, were more cautious than the Governor's messaging at the rate review. Statements in the minutes pointed to four members preferring a neutral-to-cautious view, while Deputy Governor Gupta struck a firmer tone putting to bed rate cut expectations and Governor backed a pause but saw a need for broad-based policy tightening moves if inflation quickens here on."

"Besides highlighting early signs of cost pressures seeping into categories, members viewed the inflation outlook as conditional on the monsoon outcome, El Niño risks, and geopolitical developments."

"With inflation expected to average well over 5% in second half of FY27, investors might price in potential tightening risks in the run-up."

"Onshore markets’ price action is meanwhile likely to be more influenced by energy prices and US rate movements, with USD/INR’s attempts to break above 96.0 attracting strong counter presence."

"Despite these moves, rupee 1M volatility has largely moderated this month, after peaking in June."