Industry chamber ASSOCHAM on Friday, 5 June welcomed the Reserve Bank of India's (RBI) decision to hold the repo rate steady, calling it a well-timed move to protect trade and industry from supply-side inflation pressures. The chamber argued that stable interest rates are better suited than rate hikes to navigating the current global uncertainty.

ASSOCHAM's Endorsement of the RBI Stance

Nirmal Kumar Minda, President of ASSOCHAM, said that stable interest rates 'will support demand and potentially benefit investments, consumption, employment, and overall economic growth.' He described the RBI's approach as 'well-calibrated,' adding that the measures would 'create a promising approach to growth and to control inflation.'

Minda specifically praised a set of accompanying policy measures, including the RBI bearing full hedging costs until 30 September 2026, restoring export proceeds timelines to nine months, raising investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in listed equities without Securities and Exchange Board of India (SEBI) registration, and expanding the universe of 'specified securities.'

Why Rate Hikes Would Have Been Counterproductive

ASSOCHAM's statement argued that repo rate hikes are largely ineffective against supply-side inflation, and that deploying them risks weakening the very growth drivers India needs. The chamber noted there is no strong correlation between the repo rate and the Consumer Price Index (CPI) when inflation is driven by supply disruptions rather than demand excess.

'At this juncture, the RBI's rational approach is highly commendable, as the rise in inflation is short-lived and will decline sharply once the conflict in West Asia is resolved,' the ASSOCHAM statement said. This framing positions the current inflationary episode as temporary and externally driven — a key distinction for monetary policy calibration.

Inflation and External Sector Outlook

Despite global headwinds, CPI inflation for 2026-27 is projected at 5.1 per cent — below the RBI's upper tolerance band of 6 per cent. Minda noted this as evidence that the inflation trajectory remains manageable without aggressive rate action.

India's external sector also remains relatively stable, according to the chamber. Foreign exchange reserves stand at $682.3 billion, supported by strong services exports and remittances. The banking and financial system is described as healthy, with robust credit growth, comfortable liquidity, and adequate capital buffers at both banks and Non-Banking Financial Companies (NBFCs).

RBI Measures to Strengthen Capital Inflows

The RBI also moved to ease investment norms for foreign investors, expanded access to government securities, and promoted external commercial borrowings — steps ASSOCHAM said would strengthen capital inflows and support India's balance of payments position.

In the current environment of supply chain disruptions and geopolitical uncertainty, the chamber concluded that measures improving supply conditions, enhancing productivity, and ensuring market stability will yield better macroeconomic outcomes than demand-compression tools like rate hikes. All eyes will now be on whether inflation does moderate as West Asia tensions ease, validating the RBI's calibrated hold.