RBI likely on hold for next few quarters as Brent crude corrects 22%
Synopsis
A 22 per cent crash in Brent crude has given the RBI room to breathe — and, according to Emkay Global, room to hold. With the rupee recovering and inflation manageable despite a fuel price spike, the June 5 MPC meeting looks set to be a non-event. The bigger question is how long this window of calm lasts if the Strait of Hormuz remains a flashpoint.
Key Takeaways
The RBI MPC is expected to keep rates on hold at its June 5, 2026 meeting, per an Emkay Global report.
Brent crude has corrected 22 per cent on hopes of a US-Iran deal, easing India's external account pressures.
The Indian rupee has strengthened 2 per cent , recovering from a low of ₹86.96 per dollar on 20 May 2026 .
Inflation has risen to roughly 4.5 per cent , partly driven by a 7 per cent spike in fuel pump prices, yet Emkay sees no case for a rate hike.
Consensus Nifty EPS growth for FY27 stands at 14.2 per cent , with banks a key contributor.
The incremental credit-deposit ratio at 105 per cent is flagged as unsustainable; credit growth is expected to moderate ahead.
The Reserve Bank of India's Monetary Policy Committee (MPC) is widely expected to keep interest rates unchanged at its June 5 meeting, after a 22 per cent correction in Brent crude prices eased inflationary pressures and improved India's external account outlook, according to a report by Emkay Global Financial Services released on 1 June 2026.
Why the RBI Is Expected to Hold
The Emkay report attributed the improved macro environment to a sharp pullback in global oil prices, driven by hopes of a US-Iran memorandum of understanding. The Indian rupee has strengthened 2 per cent to ₹85 per dollar after touching a low of ₹86.96 per dollar on 20 May 2026.
'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.
Crude, Hormuz, and the Rate Outlook
The report forecast that a re-opening of the Strait of Hormuz would drive Brent back to the $75–$80 range, providing meaningful relief to both the rupee and the central bank's rate calculus. Emkay saw no case for a rate hike even as inflation rose to roughly 4.5 per cent, partly due to a 7 per cent spike in petrol and diesel pump prices. Markets, however, remained volatile amid continued uncertainty over the timing of a potential US-Iran deal and the Hormuz re-opening.
Credit Growth, Deposits, and Liquidity
A benign rate environment is expected to support credit growth, underpinning a consensus Nifty EPS growth estimate of 14.2 per cent for FY27, with banks identified as a substantial contributor. Deposit growth remains healthy at 12.2 per cent year-on-year but is struggling to keep pace with credit expansion.
The incremental credit-deposit ratio (CDR) on a trailing 12-month basis stands at 105 per cent, a level the firm described as unsustainable. Emkay expects credit growth to moderate going forward, even if deposit growth improves to roughly 13 per cent as liquidity conditions ease.
Liquidity Conditions
On the liquidity front, the report noted that surplus conditions had 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 stated.
With the June 5 policy decision now days away, all eyes will be on the MPC's forward guidance, particularly any signals on how long the hold stance is likely to persist.
Point of View
But it rests on a geopolitical assumption — that the Strait of Hormuz reopens and the US-Iran deal holds. If either falters, the crude correction reverses fast, the rupee slides again, and the RBI's hold stance becomes harder to defend with inflation already at 4.5 per cent. The more structural concern is the 105 per cent credit-deposit ratio: a prolonged tight-liquidity environment could crimp the very credit growth that the benign rate outlook is supposed to support. The MPC's forward guidance on June 5 will matter as much as the rate decision itself.
NationPress
21 Jul 2026
Frequently Asked Questions
What is the RBI MPC expected to decide on June 5, 2026?
The RBI's Monetary Policy Committee is widely expected to keep interest rates on hold at its June 5 meeting. A 22 per cent correction in Brent crude prices has eased inflation concerns and improved India's external account outlook, reducing pressure on the central bank to act.
Why has Brent crude fallen, and how does it affect India?
Brent crude has corrected 22 per cent on hopes of a US-Iran memorandum of understanding and a potential re-opening of the Strait of Hormuz. For India, lower crude prices ease the import bill, reduce inflationary pressure, and support a stronger rupee — all of which give the RBI more room to keep rates steady.
What is the current inflation level in India?
Inflation has risen to roughly 4.5 per cent, partly due to a 7 per cent spike in petrol and diesel pump prices, according to the Emkay Global report. Despite this uptick, the firm sees no immediate need for the RBI to raise rates given the easing crude outlook.
What is the credit-deposit ratio and why does it matter?
The incremental credit-deposit ratio (CDR) on a trailing 12-month basis stands at 105 per cent, meaning credit is growing faster than deposits — a level Emkay Global describes as unsustainable. The firm expects credit growth to moderate going forward, even if deposit growth improves to around 13 per cent as liquidity eases.
What is the Nifty EPS growth forecast for FY27?
Emkay Global's report pegs consensus Nifty EPS growth at 14.2 per cent for FY27, supported by a benign interest rate environment. Banks are identified as a substantial contributor to this earnings growth estimate.
