The Reserve Bank of India (RBI) is going to announce its decision on the repo rate in the first monetary policy meeting of the financial year 2027 on April 8. This will also be the first MPC meeting after the start of the war in West Asia, which may have an impact on the Central Bank's growth and inflation estimates. Earlier, several polls of economists, treasury heads and strategists had revealed that the Central Bank would probably not make any changes in its rates, but its comments on the financial year would be important in deciding what the stance of the Central Bank could be. Let us also tell you what are those 5 things on which the mathematics of your pocket depends.
RBI will release its inflation estimate for FY27 in the upcoming policy review. Most economists believe that the Consumer Price Index (CPI) for FY27 will be between 4 percent and 4.7 percent. RBI had estimated CPI for FY26 to be 2.1 percent, which is quite low. India started a new CPI series in February, whose base year was 2024. Inflation increased to 3.2 percent in February, while it was 2.7 percent in January; The reason for this was the increase in the prices of food items and precious metals.
RBI will probably also include the post-war situation in West Asia in its FY27 projections. The Central Bank had estimated CPI at 4 percent for Q1 FY27 and 4.2 percent for Q2 FY27. These estimates may also be reconsidered in the upcoming MPC review.
RBI's estimate on Gross Domestic Product (GDP) growth for FY27 will also be a subject of great interest in the policy review. Most economists believe that growth in FY27 will be slightly slower than FY26, given the economic impact of the war in West Asia. RBI had earlier estimated real GDP growth for Q1 FY27 and Q2 FY27 at 6.9 percent and 7 percent respectively. Barclays economists estimate that the growth rate in fiscal year 2027 will be 6.8 percent, which is much lower than the estimated 7.6 percent in fiscal year 2026. The comments made on future growth prospects will be closely watched as the ongoing war in West Asia may impact India's growth momentum in the current financial year.
When the war broke out in late February, Brent crude oil prices rose rapidly to more than $100 per barrel. Increased oil prices are harmful for India, because they can increase pressure on prices. India imports about 80 percent of its energy needs. Economists who, before the outbreak of the war, had estimated that oil prices would be around $65 per barrel, have now revised their estimates and said that in the near future, Brent crude oil prices may remain between $85 and $90 per barrel. Currently, the price of oil is more than $100 per barrel, which is well above the expected levels. According to market experts, any comment by RBI on crude oil price estimates will be closely watched.
The rupee has managed to recover somewhat from its all-time low, thanks to the recent directions issued by the RBI to curb excessive speculation in the offshore non-deliverable forwards (NDF) markets. On March 30, the rupee briefly crossed the psychological level of Rs 95 against the dollar. This indicated that another measure of currency management (although considered a measure to increase liquidity) also did not prove to be effective in arresting the continuously falling prices of the rupee.
That day the rupee had fallen to its all-time low of ₹95.23 against $1. Last week, the market was open only for two trading sessions, due to which there were huge fluctuations in currency prices. On April 7, the rupee made a strong comeback and reached the level of 93 rupees against 1 dollar. In short, it has taken some time for the rupee to partially recover. However, experts believe that it may take some more time for the rupee to strengthen completely.
The reason for this is that market experts believe that if Brent crude oil prices remain at a high level of $ 100 per barrel, then the pressure on the rupee may increase further. Moreover, the current level at which the rupee is trading may be considered an attractive level by importers to hedge their positions.
Fitch Ratings said in a recent report that sustainable liquidity in the banking system has declined, reflecting pressure on the currency and policy action. Liquidity surplus in the banking system in India has declined to Rs 16,785 crore – the lowest level since January – due to advance tax payments and outflows for Goods and Services Tax (GST). To increase liquidity in the banking system, the Central Bank has regularly conducted liquidity management operations, such as Open Market Operation (OMO) purchases of government securities and Variable Rate Repo (VRR), to inject more money into the system. In March alone, RBI had infused around Rs 2.4 lakh crore into the system through VRR operations in different phases.
More such steps may be taken by the RBI to manage the impact on rupee liquidity, especially since the central bank has directed banks to keep their net open position (NOP) on the rupee at $100 million or less at the end of every trading day. Although this move on NOP is not immediately seen as a positive step, the market expects approximately $40 billion worth of trades to be liquidated, which will ultimately help stabilize the currency and, more importantly, bring ample dollar liquidity to the market. If this happens, it may reduce the need for RBI to intervene in the market if needed. Banks have time till April 10 to follow this instruction.
