RBI policy outlook: Rates expected to hold steady amidst inflationary pressures in FY27

New Delhi: The Reserve Bank of India (RBI) is expected to keep policy rates unchanged in FY27 as consumer price index (CPI) inflation is likely to edge up, according to a report by Crisil Ratings.

The report said CPI inflation could rise as food inflation normalises, while non-food inflation is expected to remain benign, supported by lower crude oil prices and the continued impact of goods and services tax (GST) cuts in the first half of the fiscal year.

Crisil projected India’s gross domestic product (GDP) growth at 6.7 per cent in fiscal 2027, based on the 2011-12 series. It noted that although a higher deflator may weigh on real growth, the Centre’s capital expenditure push and signs of revival in private investment are expected to support economic momentum.

Rupee outlook, FPI inflows

The report said the US-India trade deal has improved prospects for the rupee and the return of foreign portfolio investors (FPIs). The rupee is projected to settle at 89 against the US dollar by March 2027.

As of February 16, FPIs had made net investments of $2.8 billion during the month, easing pressure on the domestic currency. The rupee has appreciated to around 90.7 per dollar from about 92 at the end of January.

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Financial conditions, liquidity measures

The Crisil Financial Conditions Index (FCI) remained stable at -0.5 in January, indicating that financial conditions were tighter than the long-term average measured since April 2010, but still within the comfort band.

According to the report, RBI measures such as open market operations (OMO) involving purchases of government securities and the USD/INR buy-sell swap helped cushion systemic liquidity. Softer lending rates, driven by a cumulative 125 basis points cut during the current easing cycle, have supported bank credit growth.

While the RBI monetary policy committee (MPC) is likely to hold the repo rate steady in FY27, the report said transmission of earlier rate changes to broader interest rates in the economy will continue.

IANS