In a much anticipated decision, the RBI MPC unanimously voted to keep the policy rate unchanged at 5.25%. The committee also maintained its stance as neutral. Since February 2025, the RBI has cut policy repo rate by a cumulative 125 bps from 6.5% to 5.25%. The Indian economy as all other economies of the world faces a challenging situation where a sustained rise in oil prices could keep inflation higher while simultaneously weighing on growth. The RBI acknowledged both inflation and growth risks in the policy. ​

Domestic Growth Resilient So Far, Though Global Macro Risks Could Weigh On Outlook In FY27​

Domestic growth momentum so far has been resilient largely supported by robust private consumption and investment demand. However, downside risks to growth have increased given the ongoing West Asia conflict, with higher input costs and supply chain disruptions posing key challenges. That said, domestic fundamentals remain strong. The domestic growth for FY27 is projected at 6.9%, moderating from 7.6% growth seen in FY26. ​

Recent surge in oil prices has emerged as the key domestic inflation risk. After witnessing benign inflationary conditions for a year, inflation is expected to edge higher, which could limit/pause further monetary policy easing for some time. Additionally, emergence of El Nino conditions could also spike food prices. The RBI projected CPI inflation at ~4.6% for FY27 and core inflation at ~4.4%, both above its 4.0% medium-term target with average Brent oil price assumed at USD 85/bbl. ​

Pro-Active & Pre-Emptive Liquidity Support To Continue​

While the RBI may be constrained from lowering rates due to inflationary risks, it is likely to continue providing liquidity support to sustain growth. The RBI conducted OMO purchases amounting to Rs. 1.5 Lakh Crore and long-term FX Buy/Sell swap auction of USD 10 billion in February and March 2026. The transmission of 125 bps rate cut since February 2025 has been reasonable with weighted average lending rate (WALR) declining by 89 bps and weighted average domestic term deposit rate (WADTDR) declining by 97 bps. Going forward, liquidity support to continue as and when required. ​

Market Reaction​

Markets reacted more to the two-week ceasefire announcement, as the policy outcome was broadly in line with expectations. The Nifty 50 rose ~3.7%, the INR appreciated ~0.5%, and the 10-year yield softened by ~13 bps from previous close.​

Source: RBI, OMO- Open Market Operations ​

Ionic Wealth View​

RBI’s policy was largely in line of expectations but the balanced emphasis on growth and inflation hints towards a prolonged pause, and possibilities of immediate hikes are rather reduced. This remains a wait and watch situation for global central banks, including India, and will largely remain dependent on how the energy shock unfolds. The extent of damage on energy infrastructure is still unknown but at the same time, OPEC and Non-OPEC countries have hinted at ramping up production. With rate cuts constrained by inflation risks, proactive liquidity support could likely remain the key lever to support growth until clearer visibility on growth–inflation dynamics emerges.​ This view is for educational and informational purposes only and should not be construed as an investment advice.​