Ever since starting its rate-hiking cycle in June, the RBI made clear that the future path of monetary policy will be determined by incoming data. With GDP growth surging to a two-year high in Q2 and core inflation remaining elevated, there are good reasons to continue tightening. The counter-argument might be that it would be prudent to wait to assess the impact of the first two hikes before moving again. But we think that the recent weakness of the rupee will tip the balance firmly in favour of another rate hike at the conclusion of its policy meeting on Friday 5th October.
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