Opinion RBI maintains status quo, conserves policy ammunition
The details of the trade deal are still not out, but our first-cut analysis shows that the lower tariff would provide a growth boost of around 0.2 percentage point, taking our GDP growth projection to 7.2 per cent for FY27.
The guidelines include norms for advertising, marketing as well as sales of financial products and services by regulated entities (REs). The Central Bank chose to leave the policy interest rates unchanged in the February Monetary Policy Committee meeting, after having already cut the rates by a cumulative 125 bps in 2025. The Reserve Bank of India’s decision is supported by India’s improving growth outlook and continuation of benign inflation.
While there were no further liquidity supportive measures announced, the central bank is likely to continue intervening as required to ensure ample liquidity.
India’s macroeconomic indicators are reflecting healthy growth momentum. As per the advance estimate, India is likely to have recorded GDP growth of 7.4 per cent in FY26. The growth outlook for the country has improved with the India-US trade deal.
In the last few months, Indian exporters felt the heat of US tariffs. India’s non-petroleum goods export to the US contracted by 2.2 per cent during September-November 2025 (higher tariff was effective from September 2025), with items like gems and jewellery, ready-made garments, textiles, and chemicals specifically impacted.
While there was some diversification, India’s total non-petroleum goods export growth moderated to 3.5 per cent in September-November as against growth of 7.3 per cent during April to August 2025. Given that exports to the US account for around 20 per cent of India’s exports, there will be a big reprieve to the exporters with the lowering of tariffs.
The details of the trade deal are still not out, but our first-cut analysis shows that the lower tariff would provide a growth boost of around 0.2 percentage point, taking our GDP growth projection to 7.2 per cent for FY27.
However, we will wait for the new GDP series to finalise our projection for the year. The RBI has also shown optimism, revising the first-half growth projection upwards by 20 bps from its earlier projection. It is important to note that India’s recent bilateral trade deals with major economies like the US and the European Union are also likely to improve capital flows to the economy.
Inflation remains comfortable with an estimate of around 3.2 per cent for the fourth quarter of FY26. Core inflation is also low at around 2.6 per cent (December 2025), after excluding the impact of gold prices.
Assuming normal weather conditions, we expect inflation at a comfortable 4 per cent in FY27. However, we will have to assess the impact of the new CPI series in our inflation projection for FY27.
Despite the RBI’s liquidity-supporting measures, average banking system liquidity in the last two months lowered to Rs 0.7 trillion as against average of Rs 2 trillion in April-November 2025. One of the reasons for tightness in liquidity was the RBI’s forex interventions.
Going forward, we feel that the need for it to intervene in the forex market could reduce as we expect support for the Indian rupee with the signing of a trade deal with the US.
Despite the policy rate cuts, Gsec yields have risen by 45 bps in the last eight months. This has taken the spread between the 10-year bond yield and the repo rate to a high of 150 bps.
The Centre’s large gross borrowing requirement for FY27 has been putting pressure on the gsec yields. High state-government borrowings are aggravating the situation.
The spread on 10-year state government bonds over gsec has risen to a high of 70 bps from 35 bps in the beginning of the fiscal year. The central bank could announce OMO purchases to take care of the demand-supply scenario in the government bond market.
Going forward, we expect the RBI to maintain the status quo on policy rates. The global environment, however, remains uncertain and volatile.
The RBI has preserved the policy ammunition that could be used later if required. With credit demand improving, the focus will be to maintain a comfortable liquidity situation and support the government bond yields.
The writer is chief economist, CareEdge Ratings
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