The Reserve Bank of India (RBI) has begun its first bi-monthly Monetary Policy Committee (MPC) meeting for FY27 today. The meeting will conclude on April 8 with RBI Governor Sanjay Malhotra announcing the key repo rate decision and other policy measures taken by the committee. Now the big question is will the RBI cut, hike or maintain the status quo on repo rate?
SBI Research expects the RBI to maintain the status quo this time and focus more on communication and stability. Kotak Mutual Fund too doesn’t expect any significant action from the RBI.
Will RBI cut rates or maintain hold?
The RBI’s April 2026 monetary policy is interestingly timed. Macroeconomic complexities have intensified dramatically. The West Asia conflict have led to a sharp spike in crude oil prices —up 48% since early March. This also triggered 3% depreciation in the rupee.
Deepak Agrawal, CIO – Debt & Head – Products, Kotak Mutual Fund pointed out that, “While headline inflation at 3.21% remains within the 4% target and GDP growth holds steady at 7.8%, supply-side pressures from energy costs pose durability risks. Capital flows to emerging markets have turned cautious, pressuring current accounts and financial stability. Against this backdrop, the MPC likely faces a status quo decision, maintaining the 5.25% repo rate and neutral stance while preserving flexibility to respond should external pressures intensify further.”
SB Research believes the committee will remain cautious, as this is the first policy meeting after the escalation of the Middle East conflict. “As the situation is still evolving, we expect RBI to maintain the status quo in the upcoming policy,” SBI research noted. Here are key factors that are going to impact the RBI decision.
Oil spike, global growth expected to slow
SBI Research highlighted that disruptions in the Strait of Hormuz, a key global supply route, have triggered one of the biggest oil supply shocks since 1973. Crude oil prices have remained above $100 per barrel since the war escalated, raising concerns over global inflation.
Global growth is also expected to slow because of the same. While forecasts have not yet been revised significantly, SBI Research pegged global growth at around 3.2%.
“Stagflation risk is higher in 2026 if war prolongs,” SBI research noted.
Rupee weakens, FII outflows surge
Indian Rupee also came under pressure after the war. The currency has crossed the 90 mark and is hovering above 93 against the Dollar. The rupee depreciated by Rs 3 in just 114 days, reflecting growing external stress.
Foreign investor sentiment has also turned weak. FY26 recorded the highest foreign institutional investor (FII) outflows since 1991 at $16.6 billion, with March alone seeing outflows of $13.6 billion.
Inflation may stay above 4.5% in near term: SBI research
Rising crude prices and currency depreciation have pushed up imported inflation, which now stands significantly higher than headline inflation.
Imported inflation was estimated at 5.36% compared to headline CPI of 3.21% in February 2026. The report warned that inflation could remain above 4.5%. “CPI trajectory (as of now) may indicate more than 4.5% inflation for the next 3 quarters….though the FY27 projections are well under RBI’s target range,” SBI research noted.
Several states, including Madhya Pradesh, Uttar Pradesh, Andhra Pradesh, Rajasthan and Tamil Nadu, may face imported inflation levels exceeding 6%.
Food inflation is expected to rise due to the possibility of a ‘Super El Niño’ developing this year which could disrupt the monsoon and push food inflation higher in the coming months.
RBI may focus on liquidity, market functioning: SBI research
Instead of changing rates, RBI is expected to focus on managing liquidity and stabilising financial markets.
“What is currently required is focus on correcting market microstructure,” it said, adding that the RBI could explore “Operation Twist” to manage yields.
It also emphasised the need to address market microstructure issues.
System liquidity has already declined from Rs 2.6 lakh crore in February to Rs 1.7 lakh crore in March, indicating tighter conditions.
Further, SBI Research noted that recent regulatory steps to stabilise the rupee may pose challenges for lenders. “Some of the norms may pose operational challenges for banks,” the report observed, particularly in relation to curbs on speculative positions in currency markets.
RBI’s tone likely to remain cautious
SBI Research analysts said that while growth considerations remain relevant, the current environment of geopolitical tensions, currency volatility, and inflation risks justifies a pause in policy rates.
Madan Sabnavis, Chief Economist, Bank of Baroda highlighted that the tone and tenor of the speech are going to be important indicators, “We do not expect any change in repo rate or stance this time. The tone will be cautious and what will be eagerly awaited is RBI’s forecast of GDP and inflation under the prevailing uncertainty. We do not expect any measures for either liquidity or currency management as RBI will do whenever required as we have seen of late.”
Conclusion
The RBI is expected to tread cautiously in its communication and flag external sector concerns, including pressure on the rupee, capital outflows, rising crude oil prices, and higher inflation. For now everyone’s waiting for the Governor’s address at 10 am on April 8.