Rate Cut Cycle Over? RBI May Hold Steady In FY27 As Inflation Picks Up

The report said the US‑India trade deal has improved prospects for the rupee and return of foreign portfolio investors and projected the rupee to settle at 89 per dollar in March 2027.

Although we expect policy rates to remain steady, the transmission of past rate hikes to broader interest rates in the economy will continue, it added.

Source : ABPLIVE AI

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Key points generated by AI, verified by newsroom

• RBI likely to hold rates steady amid rising inflation expectations.
• Economic growth projected near trend, driven by government spending.
• US-India trade deal boosts rupee, attracting foreign investment.

The Reserve Bank of India's (RBI) monetary policy committee (MPC) is likely to keep policy rates unchanged in FY27 as consumer price index (CPI) inflation is expected to see an uptick, a report said on Tuesday.

The report from Crisil Ratings said that CPI inflation will rise as the food inflation normalises, adding that the non‑food inflation should remain benign, helped by lower crude oil prices and continued benefits of goods and services tax cuts in the first half of the year.

"Growth is expected to remain close to the trend. Based on the 2011-12 series, we expect gross domestic product growth at 6.7 per cent in fiscal 2027," the report mentioned.

The agency highlighted that even though the expected rise in the deflator will weigh on real growth, the central government’s capital expenditure thrust and signs of revival in private investment are expected to drive growth.

The report said the US‑India trade deal has improved prospects for the rupee and return of foreign portfolio investors and projected the rupee to settle at 89 per dollar in March 2027.

Although we expect policy rates to remain steady, the transmission of past rate hikes to broader interest rates in the economy will continue, it added.

As of February 16, FPIs had net invested $2.8 billion in February, easing pressure on the rupee. The rupee has eased to around 90.7 from roughly 92 at the end of January.

The Crisil Financial Conditions Index (FCI) was stable on-month at -0.5 in January, indicating financial conditions remained tighter than the long period average, measured since April 2010, it noted.

The agency highlighted that FCI remained within the comfort band, primarily due to actions by the Reserve Bank of India (RBI).

Open market operation (OMO) purchases of G-secs and the USD/INR buy-sell swap cushioned systemic liquidity. Softer lending rates, driven by the 125-bps rate cut in the current easing cycle, supported bank credit growth, it added.

(Disclaimer: This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)

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