At its first meeting of FY27, the RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.25%, The decision was broadly in line with market expectations. Accordingly, the SDF and MSF rates were also retained at 5.00% and 5.50%, respectively.

The decision to keep rates unchanged was unanimous, with all six members favouring the continuation of the neutral policy stance.

RBI’s macroeconomic projections

The FY27 GDP growth and CPI inflation projections mark the first full set of forecasts since the statistical data revamp undertaken by NSO in Feb-26. 

• Forecast for FY26 GDP was pegged at 7.6%, in line with NSO’s second advance estimate, basis the revised GDP series (base year: 2022-23). 
• The full year GDP growth for FY27 was introduced at 6.9%. 
• Projections for Q1 FY27 and Q2 FY27 were revised lower by 10 bps and 30 bps each, to 6.8% and 6.7% respectively. 
• Quarterly forecasts for Q3 and Q4 of FY27 were introduced at 7.0% and 7.2% respectively.  

On the inflation front, based on the new CPI series (base: 2024=100), the RBI noted that headline CPI inflation rose to 3.2% in Feb-26 from 2.7% in Jan-26, largely owing to an uptick in food inflation and partly reflecting an unfavourable base. 

In line, inflation forecasts for FY27 were set out as follows: 

• The full-year CPI forecast for FY27 was introduced at 4.6%. 
• Projection for Q1 was kept unchanged at 4.0% while for Q2 it was raised by 20 bps to 4.4%.
• Quarterly inflation forecasts for Q3 and Q4 of FY27 were introduced at 5.2% and 4.7% respectively.  
• Notably, RBI for the first time provided a Core CPI forecast for FY27 at 4.4% while noting that underlying price pressures (excl precious metals) remain muted. 

Inferences and Outlook

Growth through much of FY26 remained broadly resilient, supported by favourable policy tailwinds. 

• Private consumption was underpinned by lingering fiscal impulse (via income tax reductions, GST rate cuts, state specific transfers), alongside an accommodative monetary policy (with 125 bps of cumulative repo cuts since Feb-25). 
• In parallel, investment continued to draw support from sustained public capex momentum (up 14.5% FYTD till Feb-26) while exports (+1.8% FYTD till Feb-26) were aided by the ongoing diversification push and significant front-loading ahead of the six-month US-led tariff shock. 

As such, the Feb-26 MPC convened close on the heels of a near-Goldilocks phase, underpinned by benign inflation and robust growth, with sentiment buoyed by trade optimism. However, the economic backdrop quickly changed in the ensuing 6 weeks. The Apr-26 MPC was confronted with a macro landscape that had titled toward a looming stagflationary bias amid the US/Israel-Iran conflict - an episode that appears to have temporarily eased with a ceasefire announced on 8^th Apr-26, but the underlying energy crisis remains far from resolved. To give some context: 

• The OECD in its Economic Outlook for Mar-26 projects global growth to moderate to 2.9% in CY26 from 3.3% in CY25, as the broader spillovers from the West Asian conflict are expected to outweigh the salubrious effects of technology-led investments and easing tariff rates. Ceteris paribus, softer external demand is likely to impart a negative impulse to domestic growth. 
• Resultant supply disruptions from the month-long blockade of the Strait of Hormuz exposed India’s structural reliance on key energy imports. The crisis triggered a sharp repricing across energy markets, with Brent crude shooting up by ~45.5% MoM in Mar-26 and LNG prices touched three-year highs. This prompted the RBI to recalibrate its baseline assumption of crude oil from USD 70 pb in H2FY26 to USD 85 pb for FY27, in its macro projections. 
• Meanwhile, broader input cost pressures have also intensified, with the IMF Primary Commodities Index rising sharply in Mar-26 (+30.5%), driven by gains in fertilisers (+36.7%) energy metals (+33.7%) and industrial metals (+15.9%).
• The pass-through of the oil shock to petrol and diesel prices is likely to transmit with a lag as the government (via excise duty cuts) and OMCs (via margin compressions) continue to buffer pump prices for now. However, households have been facing the heat from higher LPG prices, adding ~14 bps in direct impact on headline CPI over Mar–Apr 2026.
• Meanwhile, the emergence of intense heatwaves, projections of a sub-par monsoon (6% below normal for CY26) owing to potential El-Nino conditions could exert upward pressure on the food inflation trajectory. The upside could get exacerbated by potential fertilizer shortages if sustained into the kharif season. Having said, buffer foodgrain stocks (over 3x the normative level) with FCI offer some near-term cushion. 
• On the fiscal front, revenue shortfall on account of excise duty cuts (if sustained) along with a heightened subsidy outgo add to the fiscal slippage, potentially crowding out the room for public capex which had so far anchored growth. 

Against this complex backdrop, the RBI has flagged upside risks to its FY27 inflation forecast, alongside downside risks to growth. While it expects growth moderation to be more pronounced in H1 FY27 (6.8% vs 7.1% in H2), inflationary pressures are likely to intensify in H2 FY27 (5.0% vs 4.2% in H1).

On the currency front, Governor reaffirmed the RBI’s commitment to its managed-float framework with emphasis on volatility management rather than level defence, aligning with the MPC’s decision to hold rates and retaining a neutral policy stance.

• As such, notwithstanding the 4.1% MoM depreciation in Mar-26 driven by risk-off capital flight, recent measures by the RBI to curb offshore speculative trades, have since aided a staged recovery in the currency (+2.1% over the week ending 8^th Apr-26). 
• With system liquidity already comfortable at Rs 3.8 tn (1.5% of NDTL), stability in the FX market would likely preclude the need for further aggressive primary liquidity injections. 

Looking ahead, the geopolitical climate continues to remain fragile and volatile. As emerging headwinds from the month-long conflict begin to weigh on domestic tailwinds, a hope remains that the war does not potentially re-escalate, following the just announced cease-fire. We continue to expect an extended pause in the policy cycle, with the repo rate likely to remain at 5.25% through FY27. 

From the perspective of gross issuances of g-secs and SDLs, the 10Y G-sec yield has eased notably from its recent peak of 7.09% to 6.92% as of the close on 8^th Apr-26. The decline appears to reflect the sharp correction in crude oil prices following the ceasefire announcement in the West Asian conflict, alongside the absence of any overtly hawkish signals in the RBI’s policy commentary. Although broadly aligned with our pre-war projection of 6.90%, the outlook now carries upside risks arising from geopolitical tensions and their potential implications for inflation and the Centre’s fiscal deficit. Meanwhile, concerns over states’ fiscal balances also remain an overhang. While G-sec issuances are scheduled to rise marginally by 1.7% in Q1 FY27 (Rs 4080 bn), SDL issuances are set to surge by 26.7% (Rs 2545 bn).