Commerzbank analyst Charlie Lay says the Reserve Bank of India has restarted a
tightening cycle, hiking the repo rate 25bp to 5.50% and shifting to an “orderly
tightening” stance. The move is precautionary to restrain rising inflation
expectations while the economy remains resilient. Lay expects the hike to
provide near-term support to the rupee, but notes oil prices, US Treasury
yields, the dollar and portfolio flows will remain the dominant drivers of INR
direction. Commerzbank says short-term rate cuts are no longer a policy option;
India’s CPI forecast for FY2026/27 was raised from 5.0% to 5.2%, and Q4 2026
inflation is expected to reach 6.0%, at the top of the RBI’s 2%–6% target band.