The report says the RBI is expected to prioritise liquidity management
The Reserve Bank of India (RBI) is likely to keep the repo rate unchanged at 5.25% at its upcoming Monetary Policy Committee (MPC) meeting, adopting a wait-and-watch approach amid growing uncertainty over inflation, economic growth and global developments, according to a research report by Nuvama.
While a rate hike appears unlikely, the report says the RBI’s policy guidance will be closely scrutinised for signals on the future course of monetary policy. Policymakers are expected to focus on inflation risks, liquidity conditions and external uncertainties, while maintaining a calibrated and flexible approach.
Inflation concerns remain elevated
According to the report, inflation risks have become more uncertain due to several supply-side pressures.
Crude oil prices remain highly volatile amid the US-Iran conflict, while disruptions in the Strait of Hormuz and the Red Sea have heightened concerns over global supply chains. In addition, the possibility of a weak or uneven monsoon, including risks linked to El Niño, could put further pressure on food inflation.
Several companies have also raised prices, adding another source of inflationary pressure. Against this backdrop, the MPC is expected to refrain from either cutting or raising interest rates and instead assess how these risks evolve.
Tighter financial conditions support status quo
Financial conditions have already tightened in recent weeks, with India’s 10-year government bond yield rising.
Higher bond yields reduce the immediate need for further monetary policy action, reinforcing the case for the RBI to maintain the status quo while focusing on liquidity management.
Growth outlook remains uneven
The broader macroeconomic picture continues to present mixed signals.
Credit growth has shown signs of improvement, although overall economic momentum remains uneven and concentrated in select sectors. While GST rate cuts have supported economic activity, Nuvama expects the impact to fade during the second half of FY27.
Meanwhile, increasing El Niño-related risks could weigh on growth by affecting agriculture and food prices. External demand also remains subdued amid continued uncertainty in the global export environment.
RBI expected to prioritise liquidity management
The report says the RBI is likely to closely monitor demand conditions, liquidity dynamics, inflation and developments in the West Asia conflict before considering any further policy action.
The central bank is expected to retain a flexible policy stance, allowing it to respond to incoming economic data and external shocks as needed.
Markets to watch RBI’s guidance
With the repo rate widely expected to remain at 5.25%, the MPC’s commentary could prove more significant than the policy decision itself.
Markets will closely watch the RBI’s assessment of inflation, liquidity and growth for clues on the timing and direction of future policy moves.
