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Assocham Calls for RBI Rate Hold
Industry group Assocham is advising the Reserve Bank of India (RBI) to maintain its current benchmark repo rate at the upcoming June policy meeting. The group argues that India is in a stronger position to manage retail inflation than many other major economies, pointing to a more stable inflation trend. India's inflation rate was 3.2% in February 2026, increasing slightly to 3.5% by April 2026. This contrasts with the United States, which saw inflation rise from 2.4% in February to 3.8% in April during the same period.
"India's inflation remains in benign conditions," said Nirmal K Minda, President of Assocham. The association suggests that a repo rate hike could harm business confidence and national demand. The RBI's Monetary Policy Committee is set to meet from June 3 to June 5, 2026. Although some economists foresee potential rate increases due to rising inflation and a weaker rupee, many do not anticipate a change in June. However, Standard Chartered has revised its forecast, now expecting a 50 basis point increase in the repo rate across the June and August policy decisions, bringing it to 5.75%.
MSME Support Proposals
Beyond monetary policy, Assocham is pushing for specific liquidity and support initiatives for Micro, Small, and Medium Enterprises (MSMEs). The industry body proposed an 'On-Tap Long Term Repo Operation' (LTRO) to channel ₹1 lakh crore at the repo rate to banks and non-banking financial companies. This funding would be directed to export-oriented and energy-intensive MSMEs for working capital loans up to ₹10 crore. Assocham also recommended a 2% interest subsidy on working capital loans up to ₹5 crore for MSMEs exporting to the MENA and EU regions. Additionally, a six-month loan moratorium or interest support for energy-intensive MSMEs was suggested to help these businesses cope with rising costs. These proposals aim to improve credit access and strengthen financial stability for these crucial economic players. Assocham has historically advocated for similar interest subsidy benefits to boost exports, noting that Indian MSMEs often face higher borrowing costs than international rivals.
Inflation and Growth Analysis
The April 2026 inflation data indicates a slight rise to 3.48% from 3.40% in March, with food inflation increasing to 4.20% from 3.87%. While this inflation is below the RBI's 4% target, it remains a significant concern. The Indian Rupee's considerable depreciation is also contributing to imported inflation pressures. In comparison, the US experienced a more pronounced inflation increase to 3.8% in April 2026. The RBI's potential decision to hold rates involves balancing inflation control with economic growth support, as evidenced by its upward revision of the GDP growth projection for FY27 to 7.2%.
Potential Risks to Rate Hold
Despite Assocham's recommendation for a rate hold, several risks could compel the RBI to reconsider. The ongoing conflict in West Asia has driven up oil prices and global uncertainty, placing strain on public finances and increasing inflation risks. Bond yields have also risen sharply, reflecting these pressures. Furthermore, the significant depreciation of the Indian Rupee heightens the risk of imported inflation, which could push retail inflation forecasts higher. Standard Chartered economists now anticipate a June repo rate hike, citing elevated retail inflation and continued pressure on the rupee. The outflow of foreign investors from Indian assets is another worry, with equity outflows already setting new records. If the RBI refrains from action, the yield gap between Indian and US sovereign bonds narrows, potentially triggering further capital outflows.
Outlook for RBI Decision
The RBI's Monetary Policy Committee will likely base its decision on its assessment of inflation trends, the impact of global events, and the trajectory of the Indian Rupee. While Assocham favors maintaining the status quo, market participants are divided, with some expecting a rate hike to counter inflation and currency depreciation. The RBI's next policy announcement is scheduled for early June 2026, and its decision will be closely monitored for its implications on economic growth and financial stability.