Indian Rupee: Hawkish RBI pause shifts rate outlook – Societe Generale

Societe Generale’s Kunal Kundu says the Reserve Bank of India's (RBI) August 2026 Monetary Policy Committee (MPC) minutes reveal a more hawkish inflation assessment than the policy statement suggested. The minutes indicate that the easing cycle has effectively ended, with the August decision better viewed as a hawkish pause. Societe Generale expects an initial 25bp rate hike in December 2026, followed by another 25bp increase in the first half of 2027.

RBI minutes point to tightening bias

"The minutes of the RBI’s August 2026 Monetary Policy Committee (MPC) meeting reveal a distinctly more hawkish assessment of inflation than was apparent from the policy statement released on August 5."

"More significantly, Deputy Governor Poonam Gupta stated that the scope for further easing “does not seem to exist” and that a case for a rate increase could emerge during the year."

"Rather than a dovish pause that preserved room for another rate cut, the minutes suggest that the easing cycle has effectively ended."

"The August decision is therefore better characterised as a hawkish pause, with the RBI awaiting evidence that the inflation shock is persistent or broad-based before raising rates."

"We, therefore, continue retain our expectation of an initial 25bp policy rate increase at the December 2026 MPC meeting, followed by another increase of a similar magnitude in either Q1 or Q2 2027, before the shallow tightening cycle comes to an end."