RBI Likely to Maintain Rates in April Policy Decision Amid Heightened Focus on FY27 Projections

RBI Expected to Keep Interest Rates Steady Amid West Asia War Uncertainty

The Reserve Bank of India's (RBI) monetary policy committee (MPC) is anticipated to maintain its interest rates at 5.25 percent in the April review, as the focus shifts towards the inflationary impacts of the war in West Asia. A Moneycontrol poll of economists, FX strategists, and heads of treasuries reveals that the RBI is likely to adopt a cautious stance in the face of elevated Brent crude prices and a weakening rupee.

Rise in Brent Crude Prices and Rupee's Decline

The war in West Asia has led to a surge in Brent crude prices, which have remained above $100 per barrel. This has resulted in a significant decline in the rupee, with the currency falling nearly 3 percent since the start of the year. Economists forecast further pressure on the rupee if Brent crude prices continue to remain elevated.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Recent RBI Measures and Future Trajectory

Recent measures by the RBI to prop up the currency have provided temporary relief, but the further trajectory for the rupee and interest rates will be determined by global macro factors. Economists anticipate that the RBI may continue to inject liquidity into the system to mitigate the impact of the war on the economy.

Comparison of Central Banks' Interest Rate Actions

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

RBI's Rate Cuts and Market Expectations

The RBI has slashed interest rates by a cumulative 125 basis points since February 2025, with the last rate cut in December 2025. Market participants have expected a pause by the RBI based on future market conditions. Some economists forecast a potential rate hike by the end of the fiscal year if Brent crude prices remain elevated at $100 per barrel throughout.

Inflation Projection and RBI's Forecast

The RBI is likely to announce its full-year inflation forecast in the upcoming monetary policy review. As per the central bank's projections, inflation for the first and second quarters of FY27 are expected to be at 4 percent and 4.2 percent respectively. However, economists expect India's CPI for FY27 to average between 4.5 percent and 4.7 percent, driven by higher energy prices.

Growth Projection and RBI's Forecast

Most economists believe that growth in FY27 will moderate, as compared to FY26, taking into account the economic impact from the West Asia war. The RBI had projected real gross domestic product for Q1 FY27 and Q2 FY27 to be 6.9 percent and 7 percent respectively.

The RBI's decision on interest rates and inflation forecast will be critical in guiding the market. The central bank's liquidity measures and future trajectory will also be closely watched by market participants.