With the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) set to meet next week to deliberate on the key policy decisions, including the inflation and repo rate, a key challenge coming for the apex bank will to address the rising fuel and gas prices.

The central government has hiked the petrol and diesel prices for four time in less than two week with the petrol prices spiked up to Rs 7.5 per litre.

Since the onset of Iran War,centre has hiked the fuel pricesto contain the losses against the rising crude prices. Prices were increased for the first time on May 15 by Rs 3 per litre, followed by another hike of around 90 paise on May 19, and got costlier for the third time on Saturday. The fourth price hike came into effect on Monday, taking the Petrol prices above Rs 100 mark.

Recently, amid the falling Rupee, RBI had conduct aUSD 5 billion USD-INR buy and sell swap auctionnext week to inject long-term liquidity in the banking system.

The swap is in the nature of a simple buy/sell foreign exchange swap from the RBI side. A bank shall sell US dollars to the Reserve Bank and simultaneously agree to buy the same amount of US dollars at the end of the swap period.

Economists have warned that the recent hike in the fuel prices and the import duties on gold and silver could push retail inflation to 5 per cent by June. However, RBI will wait and watch till the impact of fuel price hike settles in before tightening interest rates.

RBI does not see interest rate hikes as the best way to defend the embattled rupee, three sources said, as reported by Reuters.

Radhika Rao, senior economist and executive director at DBS Bank said given theweightage of petrol and dieselin the CPI basket, a 3-5 per cent increase likely adds 0.15-0.25 per cent to the headline inflation, besides second round impact.

Further, SBI Research in its report said the immediate impact on CPI inflation is likely around 15-20 bps in May-June 2026."We revise our FY27 forecast to 4.7 per cent. There is no direct impact of this hike on the fiscal situation," the note added.

The food and commodities prices have already begin to feel the heat as their prices have started to record an uptick due to the rising fuel and gas prices. The increase in petrol and diesel prices are set to impact everyday expenses from food delivery and groceries to dining out.

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