SBI Research sees FY27 inflation averaging 5%; says stable rupee crucial as imported inflation rises

India’s imported inflation climbed to 8.13% in June 2026, its highest level in recent months, even as headline retail inflation accelerated to 4.38%, prompting SBI Research to caution that maintaining a stable rupee with minimal volatility will be critical to containing future price pressures. 

In its latest Ecowrap report released on July 13, SBI Research said headline Consumer Price Index (CPI) inflation rose by 45 basis points from 3.93% in May to 4.38% in June, driven largely by higher food prices and a sharp increase in transport and services inflation. Core inflation, excluding food and fuel, also firmed up to 4.20%, indicating that price pressures are becoming more broad-based. 

The report projects that CPI inflation will average 5% in FY27, with inflation expected at 5.1% in the second quarter, 5.7% in the third quarter, and 5.1% in the fourth quarter. 

Imported inflation poses a growing risk 

SBI Research noted that imported inflation rose from 7.23% in May to 8.13% in June, underscoring the importance of exchange rate management amid global uncertainties and elevated commodity prices. According to the report, understanding imported inflation has become especially important in the context of the Reserve Bank of India’s foreign currency mobilisation measures announced in June. 

The report argued that a relatively stable rupee, supported through prudent intervention in the foreign exchange market, could help prevent imported inflation from spilling over into domestic prices. 

FCNR(B) deposits may already reach $8-9 billion 

SBI Research estimated that foreign currency non-resident (bank), or FCNR(B), deposits mobilised under the RBI’s latest scheme have likely reached $8-9 billion across the banking system, although official data is yet to be released. It also estimated external commercial borrowings (ECBs) at around $5 billion and overseas foreign currency bonds (OFCBs) at roughly $3 billion under the scheme so far. 

The report highlighted four reasons why the 2026 mobilisation programme differs from the successful 2013 scheme: 

• RBI is bearing the entire hedging cost on fresh FCNR(B) deposits. 
• Early clarity on leverage and standby letters of credit (SBLCs) has encouraged faster inflows. 
• Banks have a longer mobilisation window of nearly four months. 
• The emphasis is on five-year deposits instead of shorter maturities, reducing future redemption risks. 

Why hasn’t the rupee strengthened? 

Despite capital inflows exceeding $15 billion in recent weeks — including $7.1 billion in foreign portfolio investment, mostly into debt — the rupee has remained largely range-bound. Foreign currency assets have also increased, yet the currency has not appreciated significantly. 

SBI Research attributed this to the RBI’s active use of forward market operations. Outstanding net forward positions rose to $106.6 billion in May 2026, with the central bank concentrating interventions in short-term maturities to contain volatility and counter offshore market pressures. 

The report said this “Gladiator defence mechanism” should help preserve rupee stability despite heightened geopolitical uncertainty and volatile global markets. 

Transport and services push inflation higher 

Among the key drivers of June inflation, transport inflation recorded the sharpest increase, jumping 256 basis points to 4.3%. Inflation in restaurants and accommodation services rose to 6.9%, while food and beverages inflation climbed to 5.1%, making these the largest contributors to the overall rise in consumer prices. 

Both rural and urban India experienced higher inflation. Rural CPI increased from 4.25% to 4.74%, while urban inflation rose from 3.53% to 3.92%. Transport inflation accelerated equally across rural and urban areas, while food prices remained higher in rural India. 

Given persistent imported inflation and broadening domestic price pressures, SBI Research said it expects the RBI to maintain a prolonged pause in interest rates during FY27, while continuing to prioritise exchange-rate stability.