RBI Likely Keeps Rates Unchanged to Support Growth
RBI Likely Keeps Rates Unchanged to Support Growth
RBI is expected to hold the repo rate steady, keep overnight rates below it, and maintain the 4% inflation target with a 2-6% band, signaling a pro-growth stance.
Mumbai: The RBI is expected to keep overnight rates — call and TREPS — below the policy repo rate to boost growth as imported inflation poses a risk. Policymakers may look past elevated near-term inflation prints while keeping the policy rate at 5.25%.
Traders see overnight rates as the first signal in the policy trajectory, with markets pricing in a lower probability of immediate hikes.
Call rate averaged 5% in February and 5.29% in March so far, reflecting tight liquidity from quarterly advance tax outflows and RBI interventions in the FX market. The policy rate stands at 5.25% after a series of reductions in the easing cycle.
Monetary policy has to lean against the growth-negativity of the current situation; countercyclical measures are needed as external shocks threaten activity. A gradual easing bias remains intact while liquidity remains supported by bond purchases.
Inflation ran 3.21% in February, still below the 4% target, but higher oil prices could push inflation higher. Goldman Sachs recently trimmed its India GDP growth forecast for 2026 to 5.9% from 7%, underscoring the challenge of balancing growth with price stability.
The RBI’s mandate remains unchanged: inflation at 4% with a band of 2-6% for the next five years, covering April 1, 2026 to March 31, 2031. The government’s GST cuts and other policy support are seen as reinforcing this framework while the RBI monitors external and domestic developments to ensure stability.
