Daijiworld Media Network - Mumbai

Mumbai, Aug 4: The Reserve Bank of India (RBI) is widely expected to keep key policy interest rates unchanged in its monetary policy review on Tuesday, with inflation remaining within the central bank's comfort zone and the focus shifting towards supporting economic growth, analysts said.

India's retail inflation stood at 4.38 per cent in June, remaining within the RBI's target range of 2 to 6 per cent. The central bank aims to maintain inflation around the 4 per cent midpoint of the band to balance price stability with economic growth.

The June inflation print was driven largely by higher global crude oil prices and rising costs of certain imported production inputs. However, public sector oil marketing companies have largely absorbed the increase in crude prices, limiting the impact on consumers.

RBI Governor Sanjay Malhotra has indicated that the Monetary Policy Committee would consider raising interest rates only if inflationary pressures become broad-based rather than being driven by temporary supply-side shocks.

According to the RBI's June projections, retail inflation is expected to average 5.1 per cent during the financial year ending March 31, 2027, while the economy is projected to grow by 6.6 per cent. These estimates were based on an assumed average crude oil price of around $95 per barrel. With crude prices remaining below that level, analysts expect the forecasts to remain broadly on track.

India has also increased purchases of discounted Russian crude, with more than half of its crude oil imports coming from Russia in July, helping contain import costs and reduce dependence on Gulf suppliers. Public sector oil companies have also sourced more than 70 per cent of their liquefied petroleum gas (LPG) imports from the United States.

While some market experts had suggested a rate hike to support the rupee by attracting foreign capital, the RBI's recent measures—including the removal of capital gains tax for foreign investors in Indian government bonds and more attractive dollar deposit schemes for non-resident Indians—have reportedly helped attract nearly $40 billion in foreign exchange inflows, providing support to the domestic currency.