As the Reserve Bank of India (RBI) heads into its first policy decision of the new financial year on 8 April, a rate pause is widely expected even as a rapidly shifting macro landscape triggered by the West Asia war may force a shift in its outlook.
A Mint poll of 10 economists and market participants points to rising inflation risks and a weakening growth outlook, with all expecting the Monetary Policy Committee (MPC) to hold rates while signalling a more cautious policy stance.
In 2025, the RBI had cumulatively cut the repo rate—the rate at which it lends short-term funds to banks—by 125 basis points (bps), with the last cut of 25 bps in December to 5.25%.
“We do expect to hold onto the repo rate and stance,” said Madan Sabnavis, chief economist at Bank of Baroda. The MPC’s stance has remained neutral since June 2025.
“The tone will be cautious,” Sabnavis added. “(Gross Domestic Product or GDP) growth forecast is important as it will anchor market expectations—it could be in the range of 7-7.25%, inflation around 4-4.5%.”
Separately, experts do not expect the RBI to use policy rates to shore up the rupee, which has been under pressure since the war began, as the central bank has already taken a series of external and regulatory measures to manage volatility.
All eyes on RBI’s GDP and inflation outlook
Meanwhile, markets are keenly watching the RBI’s projections on economic growth and inflation.
In its previous policy on 6 February, the MPC had projected real growth for April-June quarter at 6.9% and July-September at 7%, and had deferred the projections for the full year to the April policy because of the new GDP series released in February.
As for inflation, the RBI projected consumer price index (CPI) inflation at 4% and 4.2% for Q1 FY27 and Q2, respectively. CPI inflation rose to 3.21% in February from 2.75% in January.
A 5 April report by SBI Research said the war has triggered “the largest disruption to the global oil market… since 1973”, pushing up imported inflation and weakening the rupee. Brent crude prices have surged to more than $100 per barrel from $73.91 on 27 February, a day before the war began.
“Before the war, we were looking at inflation of 4.1%, and now we are expecting it at 4.7% but with an upward bias,” Upasana Bharadwaj, economist at Kotak Mahindra Bank said, adding that the bank’s GDP growth estimate has been revised down from 7% to 6.5% in the new financial year.
HDFC Bank also echoed similar concerns. “We may see an upward revision in the forecast given the impact on prices already visible in March,” Sakshi Gupta, principal economist at HDFC Bank said. However, she expects the RBI to stress that inflation remains within its target band.
Barclays, too, has pegged FY27 GDP growth at 6.8% (down from 7.6% in FY26), and inflation at 4% in FY27, from an estimated 2.1% in FY26, warning that a prolonged oil shock could push inflation above target and slow growth further.
Defending the rupee
A key theme this time is the RBI’s proactive defence of the rupee, even as market participants do not expect fresh measures in the policy itself.
Recent steps—from limits on banks’ currency positions to curbs in the derivatives market—signal an aggressive approach, tightening offshore rupee regulations to curb speculation and limit spillovers to the onshore market.
Despite the rupee hitting an all-time low of 95.1250 per dollar on 30 March, most experts believe policy action and currency management will remain separate.
“I don’t think policy will have measures for currency. Those are done on how the central bank views volatility,” Sabnavis said.
Bharadwaj added that RBI has already taken several measures to curb speculative activity against the rupee, “and any of the measures don’t have to be linked to policy”.
Expectations are that the RBI will continue with regulatory and unconventional tools rather than rate hikes to defend the currency, Tanay Dalal, senior vice president II – business & economic research at Axis Bank said.
Despite intervention, pressure on the rupee is expected to persist. Barclays estimates USD/INR could weaken toward 96.8 by December 2026, reflecting a widening current account deficit and global headwinds .
In the bond market, yields are likely to remain elevated as risk premia rise. MUFG expects India’s 10-year yield to stay biased further above 7% amid fiscal concerns and global factors.
Liquidity management will also be key, with the RBI likely to rely on tools such as (variable rate repo) and VRRR (variable rate reverse repo) to keep conditions broadly neutral while managing borrowing pressures.
Overall, the April policy is shaping up to be less about action and more about signalling in an increasingly uncertain global environment.
“The uncertainty around the impact of the current conflict could keep the RBI in a wait-and-watch mode,” HDFC Bank’s Gupta said.