Does PM Narendra Modi’s speech signal interest rate hike in the next RBI MPC meeting?

The Indian stock market was rattled by Prime Minister Narendra Modi’s call to conserve foreign exchange reserves by curbing gold imports, reducing fuel and fertiliser consumption, and cutting international travel amid the ongoing US-Iran conflict in the Middle East.

While the PM Modi’s speech aimed at preserving forex reserves during a global geopolitical crisis, the market interpreted them as a sign of domestic economic stress, triggering panic selling.

Crude oil accounts for nearly 20% of India’s total imports, gold around 9%, and fertilisers about 2%. Additionally, nearly 58% of total remittances under the Liberalised Remittance Scheme (LRS) — amounting to roughly $30 billion in FY25 — is attributed to international travel. Remittances for overseas equity investments have also risen sharply, increasing to 8.4% from 3.1% in FY19.

Since the US-Iran war began in February 2026, crude oil prices have remained elevated, with Brent crude sustaining above $105 per barrel, putting pressure on the external balances of emerging market economies, including India. The impact has already been visible in the rupee, which has depreciated 10% against the US dollar in FY26, with nearly 4% of the weakness attributed to the conflict.

The primary concern remains the potential disruption of the Strait of Hormuz, which has intensified inflationary pressures across industries due to supply constraints in key commodities, particularly fuel. Rising inflation concerns are expected to influence the Reserve Bank of India’s monetary policy outlook.

Persistent inflation could eventually lead to higher interest rates. However, analysts believe it is premature to expect a repo rate hike by the RBI at this stage, with the central bank more likely to maintain a cautious stance rather than adopt an aggressively hawkish approach.

Rate hike on the cards?

Nikunj Saraf, CEO, Choice Wealth believes PM Modi’s speech reflects the government’s growing focus on economic stability, inflation management, and external-sector discipline at a time when global uncertainties remain elevated.

“It should not be interpreted as a direct indication of an RBI rate hike in the upcoming MPC meeting,” Saraf said.

He noted that the government’s focus on controlling non-essential imports, prudent forex management, and maintaining macroeconomic resilience indicates policymakers are mindful of inflationary and currency-related risks. However, the RBI’s policy decision will continue to depend largely on incoming macroeconomic data, particularly inflation trends, crude oil prices, liquidity conditions, and global monetary developments.

“At this stage, the central bank is more likely to remain cautious rather than turn aggressively hawkish. Domestic growth remains healthy, while inflation, although manageable, still carries risks from global commodity prices and geopolitical developments. Given this balance, the probability of an immediate rate hike appears limited for now,” Saraf added.

Sunny Agrawal, Head of Fundamental Research at SBI Securities, echoed a similar view. He believes the current developments are unlikely to trigger an immediate rate hike by the RBI.

Agrawal pointed out that the RBI had already marginally revised its inflation forecast upward in the previous monetary policy meeting, while concerns surrounding the West Asia crisis had also been acknowledged in the RBI Governor’s commentary earlier.

“In our view, the current developments are unlikely to have a significant impact on inflation, and therefore, an immediate interest rate hike does not appear to be on the cards. That remains our assessment at this stage,” Agrawal said.

According to Saraf, the broader takeaway from the Prime Minister’s speech is not that higher interest rates are imminent, but rather that both the government and the RBI are likely to prioritise economic stability over aggressive policy support measures.

“Therefore, the next MPC outcome may continue to lean towards a status quo stance with a cautious policy tone rather than an outright rate increase,” he added.

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