MPC Meeting: HSBC Sees No Rate Increase Unless Oil Exceeds $100

RBI Interest Rate Hike Unlikely Unless Crude Oil Prices Remain Above $100​

New Delhi, April 2 – The Reserve Bank of India is unlikely to raise interest rates at its upcoming Monetary Policy Committee meeting next week, according to a report released on Thursday. The report suggests that the RBI’s decision will largely depend on sustained crude oil prices above $100 per barrel.

HSBC Forecasts No Rate Hikes with $80 Oil Price​

HSBC Global Investment Research projects no rate hikes if the average oil price in 2026 is $80 per barrel. The research firm contends that defending the rupee with interest rate hikes could prove costly if the growth drag from higher oil prices intensifies rapidly and becomes non-linear.

Policy Meeting Scheduled April 6-8​

The RBI’s three-day policy meeting, scheduled from April 6 to April 8, marks the first since the ongoing energy shock triggered by the West Asia conflict pushed Brent crude to average around $100 per barrel in March.

HSBC Rejects Rate Hike Speculation​

The report follows the RBI’s move on March 27 to tighten onshore banks’ net open foreign exchange positions, sparking speculation about a potential interest rate defense of the rupee. HSBC countered this view, stating that the threshold for rate hikes remains high.

Unique Energy Shock Compared to Past Cycles​

HSBC highlighted that the current energy shock differs from previous oil price cycles. It is characterized not only by higher prices but also by quantity constraints across energy sources, amplified by quota systems and impacting downstream sectors.

Potential Growth Drag Warning​

If the energy shock persists for several weeks, HSBC cautioned that the growth drag could outweigh the inflationary impact, potentially resembling the economic conditions of the pandemic more closely than the 2022 oil shock.

Inflation Model Suggests $100 Oil Threshold​

HSBC’s inflation model indicates that if oil averages below $100 per barrel, inflation should remain within the RBI’s 6 per cent upper tolerance band under its flexible inflation targeting framework. However, sustained oil prices above $100 per barrel could push inflation beyond 6 per cent, potentially triggering rate hikes.

Caution Against Demand Stimulation​

Drawing lessons from the pandemic, HSBC advised policymakers against stimulating demand before supply disruptions are resolved. The firm noted that stimulating demand before supply repair led to high and persistent inflation. The challenge now is to strike a delicate balance – avoiding overstimulation while preventing a deeper growth slowdown.

Fiscal Recommendations​

On the fiscal side, HSBC recommended maintaining the deficit close to FY26 levels, suggesting that raising petrol and diesel prices would help contain fiscal slippage.