WILL THE RBI HOLD RATES? 5 THINGS TO LOOK OUT FOR THIS APRIL MPC

The Reserve Bank of India (RBI) is set to announce its decision on repo rates on April 8, in the first monetary policy meeting of FY27. It will also be the first MPC meeting since the war in West Asia broke out, which could influence the central bank’s projections of growth and inflation.

Earlier, a Moneycontrol poll of economists, heads of treasury, and strategists found that the central bank will likely stay pat on its rates, but commentary on FY27 will be key to deciding what the central bank’s stance could be. At this juncture, here are five things to look out for.

Inflation projection

The RBI will announce its FY27 projection for inflation in the upcoming policy review. Most economists are of the view that the Consumer Price Index (CPI) for FY27 will range somewhere between 4 percent and 4.7 percent. The RBI had projected FY26 CPI to come in at 2.1 percent, which is significantly lower.

India had launched a new CPI series in February, with the base year of 2024. Inflation for February inched up to 3.2 percent, as compared to 2.7 percent in January, driven by higher prices in food and precious metals.

The RBI is likely to factor the aftermath of the war in West Asia into its FY27 projections. The central bank  had projected CPI to come in at 4 percent for Q1 FY27, and 4.2 percent for Q2 FY27. These projections could also be challenged in the upcoming MPC review.

“This would reflect some partial passthrough to domestic inflation from oil prices, and also the impact of the recent CPI rebasing exercise,” Michael Wan, Senior Economist at MUFG, said.

Growth projection

RBI's projection on FY27 gross domestic product (GDP) growth will also be a matter of keen interest in the  policy review.

Most economists believe that growth in FY27 will moderate, as compared to FY26, taking into account the economic impact of the West Asia war. The RBI had earlier projected real GDP for Q1 FY27 and Q2FY27 at 6.9 percent and 7 percent, respectively.

Barclays economists expect FY27 growth to be 6.8 percent, sharply down from an estimated 7.6 percent in FY26. The commentary on future growth outlook will be closely watched, as the spillover from the West Asia war is likely to make a dent on India’s growth trajectory for the current fiscal year.

Crude oil price assumptions

After the war broke out in late February, Brent crude oil prices shot up to trade beyond $100 per barrel. Elevated oil prices are detrimental to India, as they can spike up price pressures, with the country importing nearly 80 percent of its energy needs.

Economists who had assumed that oil prices could stay around $65 per barrel before the war broke out have now raised their forecasts that Brent crude oil could trade anywhere between $85 - $90 per barrel in the near term. At present, oil costs more than $100 per barrel, which is still way above the forecasted levels.

Any commentary on crude price assumptions from the RBI will be closely watched, according to market participants.

Rupee volatility

The RBI’s recent directives to curb excessive speculation in the offshore non-deliverable forwards (NDF) markets have managed to bring back the rupee from a record low. On March 30, the rupee briefly crossed the psychological Rs 95 per dollar, suggesting that another currency management tool (though seen as a liquidity measure) did not help in arresting the free fall of the rupee.

The rupee touched an all-time low of Rs 95.23 per dollar that day. Last week, the market was open for only two trading sessions, which also led to outsized reactions in the currency. The rupee staged a comeback on April 7 when it touched the Rs 93 per dollar level. In short, the INR has taken its time to stage a partial recovery, though experts believe that a full-blown appreciation could still be some time away.

That is because market participants foresee more pressure if Brent crude oil prices stay elevated at $100 per barrel. Moreover, the current level at which the rupee is trading could be seen as an attractive level for importers to hedge their positions.

“Overall, we think the fundamental flow picture for INR still points towards FX weakness moving forward. As such, once the dust on these regulations settles, we think it is still a good chance for clients to buy USD/INR, if lower levels in the markets allow moving forward,” MUFG’s Wan said.

On April 7, Moneycontrol reported that the RBI could be deliberating on incentives for Foreign Currency Non-Resident bank deposits (FCNR -B) to arrest likely further depreciation in the  rupee.

Liquidity management

Fitch Ratings, in a recent report, said that durable liquidity in the banking system has reduced, reflecting currency pressures and policy actions. Banking system liquidity surplus in India has reduced to Rs 16,785 crore, the lowest level since January, due to advance tax payments and outflows for goods and services tax (GST).

To prop up liquidity in the banking system, the central bank has routinely conducted liquidity management operations, such as Open Market Operations (OMO) purchases of government securities and Variable Rate Repo (VRR), to infuse more rupee into the system. In March itself, the RBI had injected nearly Rs 2.4 lakh crore through VRR operations via different tranches.

More such initiatives could be announced by the RBI to manage the impact on rupee liquidity, especially after the central bank instructed banks to keep their net open position (NOP) on the rupee at or below $100 million as of the end of each business day.

While the move on NOP hasn’t been viewed as an immediate positive, the Street expects nearly $40 billion of trades to be unwound, which should eventually help stabilise the currency and, more importantly, pump in adequate dollar liquidity in the market. If this happens, it might ease the RBI’s necessity to intervene in the market on a need basis. Banks have time till April 10 to comply with this directive.

2026-04-07T11:40:22Z