RBI likely to hold policy rates as global turmoil persists

report

IANS New Delhi

The Reserve Bank of India (RBI) is likely to keep the policy repo rate unchanged at 5.25% in its April 2026 Monetary Policy Committee (MPC) meeting, as rising geopolitical tensions and elevated crude oil prices weigh on the economic outlook, according to a report by Bank of Baroda. The report suggests that the rate cut cycle has likely ended, with the central bank expected to adopt a prolonged pause while maintaining a neutral stance. 

The evolving US-Iran conflict, which has disrupted energy supplies and pushed crude oil prices above $100 per barrel, has emerged as a key risk factor influencing policy decisions.Rising oil prices are expected to fuel inflationary pressures while also dampening growth momentum.  The report noted that the full impact of the conflict on inflation and economic activity will become clearer over the next three to four months, after which the RBI may reassess its rate trajectory.  Financial markets have already reacted sharply to the geopolitical developments.

Increased volatility, FPI outflows, and rising bond yields have added pressure on the Indian rupee, which has weakened to record lows of 94.83 against the US dollar. The report also flagged concerns over India’s external balance, warning that the current account deficit is likely to widen significantly in FY27 due to higher import bills, particularly for energy. While the RBI is expected to remain on hold for now, the report cautioned that a breach of the upper inflation tolerance band of 6% could prompt a rate hike later in the year. The central bank may also consider targeted liquidity measures to stabilise financial markets and support the currency. Despite near-term risks, India’s growth outlook remains relatively resilient, with GDP projected at 7.6% in FY26 and 7–7.2% in FY27, though downside risks persist.

The central bank’s cautious approach also reflects uncertainty in global financial conditions, particularly the trajectory of US interest rates and capital flows.