New Delhi’s financial circles are buzzing with expectations that the Reserve Bank of India’s Monetary Policy Committee (MPC) could maintain steady policy rates through fiscal year 2027. A fresh report from Crisil Ratings highlights a modest uptick in CPI-based inflation as the key factor influencing this outlook.
Experts point to normalizing food inflation as the primary driver behind the projected CPI increase. However, lower crude oil prices and benefits from GST reductions in the first half of the year are expected to keep non-food inflation in check. This delicate balance suggests the RBI might opt for stability rather than aggressive moves.
Economic growth is forecasted to hover around normal trends, with GDP expansion pegged at 6.7% for FY27 on the 2011-12 base series. While a potential rise in the deflator could exert some pressure on real growth, robust capital expenditure from the central government and improving private investments are set to provide the necessary momentum.
The report also sheds light on favorable external factors bolstering the economy. A prospective US-India trade deal has strengthened the rupee, coupled with signs of returning foreign portfolio investors (FPIs). By March 2027, the rupee is projected to stabilize at 89 per dollar.
FPI inflows have been robust, with a net investment of $2.8 billion in February up to February 16, easing pressure on the currency. The rupee has appreciated from nearly 92 per dollar at the end of January to around 90.7 currently.
Even as policy rates remain unchanged, the lagged effects of prior rate hikes will continue to influence borrowing costs across the economy. Crisil’s Financial Conditions Index (FCI) held steady at -0.5 in January, indicating slightly tighter conditions than the long-term average but balanced by RBI interventions.
RBI’s open market operations (OMO) purchasing government securities and dollar-rupee buy-sell swaps have supported system liquidity. Amid the ongoing easing cycle, a 125 basis points rate cut has lowered lending rates, fueling bank credit growth and supporting broader economic activity.