RBI Should Avoid Aggressive Rate Hikes Amid High Crude Risk to Growth, Says Axis AMC's Devang Shah

The Quick Take

• Axis AMC's Head of Fixed Income urges the RBI to avoid aggressive rate hikes as high crude prices threaten economic growth
• Devang Shah expects the central bank to adopt a calibrated approach through gradual rate adjustments and dollar inflow measures
• Supply-side oil inflation cannot be fixed with rate hikes, which only raise domestic borrowing costs without addressing the root cause

Axis AMC's Head of Fixed Income Devang Shah has urged the Reserve Bank of India to avoid aggressive rate hikes, warning that sharply tighter financial conditions could hurt economic growth and worsen stress in highly-leveraged sectors. Shah expects the RBI to adopt a calibrated approach through gradual rate adjustments combined with measures to attract dollar inflows.

Shah's concern is grounded in India's crude oil import dependence — oil-driven inflation is largely supply-side in nature, and rate hikes are a blunt instrument that raises domestic borrowing costs without addressing the underlying energy price driver. Aggressive monetary tightening in this context could slow infrastructure lending and corporate credit, weighing on India's investment cycle at a time when the economy needs sustained capital formation to maintain 7-8% GDP growth.

Watch the RBI's next Monetary Policy Committee meeting for rate decision signals and the tone of statements on growth versus inflation trade-offs. The key data point: India's core CPI excluding food and fuel, which reveals whether the oil shock is transmitting into broader domestic price pressures that would justify rate hikes beyond the oil-specific inflation. The macro variable: global oil prices — a sustained decline below $90 per barrel significantly reduces the RBI's compulsion to tighten aggressively.

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