RBI Likely To Maintain Repo Rate At 5.25% Through FY27: India Ratings
The Reserve Bank of India is expected to keep the repo rate unchanged at 5.25% throughout FY27 as inflation is projected to remain within the central bank’s tolerance range despite rising global uncertainties and higher crude oil prices, according to a report by India Ratings and Research.
The agency projected India’s GDP growth at 6.7% for FY27, while retail inflation is expected to average 4.4% during the fiscal year.
India Ratings said the RBI is unlikely to either raise or reduce policy rates as current inflation projections remain below the upper tolerance limit of 6%, even though consumer prices are expected to trend upward due to fuel-related pressures.
The report noted that the ongoing geopolitical tensions in West Asia are impacting global inflation, crude oil prices and currency markets, which could weigh on India’s growth outlook. It added that both government and private consumption may moderate amid inflationary concerns, volatile crude prices and uncertainty surrounding monsoon conditions.
According to the agency, private sector investments could remain cautious as businesses continue to assess slowing export demand, elevated inflation and weaker consumer sentiment. Sectors dependent on crude oil derivatives are expected to face higher pressure, while segments such as data centres and global capability centres may continue to support economic activity.
India Ratings projected the country’s trade deficit at 10.4% of GDP in FY27, which would be the highest level in a decade. The widening deficit is expected to be driven by higher imports of crude oil, electronics, gold and silver, along with currency depreciation. The report estimated that the rupee could weaken by around 6-7% on average during the year.
The agency also expects the benchmark 10-year government bond yield to remain above 7% due to concerns over fiscal deficit levels and government borrowing requirements. Higher bond yields could increase borrowing costs for corporates, state governments and non-banking financial companies.
India Ratings assumed average crude oil prices at $95 per barrel for FY27, with prices likely to average $110 per barrel during the first quarter before moderating gradually. It estimated that every $10 per barrel rise in crude prices could lower GDP growth by 44 basis points and increase inflation by 93 basis points.
The report further warned that the government’s fiscal position could face pressure from lower fuel excise collections and higher subsidy burdens related to LPG, fertilisers and fuel support. However, any government response is expected to focus more on liquidity support and guarantees rather than direct cash transfers.
India Ratings also said the impact of El Niño conditions could become more visible from the second quarter of FY27, though improved irrigation coverage and diversification within the agriculture sector may help limit the impact on farm output.
