The Reserve Bank of India’s Monetary Policy Committee voted 4-2 to keep the repo rate unchanged at 6.25% in its March 2026 policy review, pausing after the surprise 25 basis point cut in February. Governor Sanjay Malhotra cited heightened global uncertainty from trade wars and volatile capital flows as key reasons for the pause.
Key Policy Highlights
- GDP Growth Forecast: Maintained at 6.7% for FY27, with Q1 projected at 6.5% and gradually accelerating through the year
- Inflation Forecast: CPI inflation projected at 4.2% for FY27, with food inflation expected to moderate as rabi crop arrivals increase
- Liquidity: RBI announced Rs 40,000 crore of additional liquidity through OMO purchases to address the banking system’s liquidity deficit
- Stance: Maintained “accommodative,” signaling willingness to cut rates when conditions permit
Why the Pause Makes Sense
Several factors justified the hold:
Global Trade Uncertainty: With the US set to announce reciprocal tariffs on April 2, the impact on India’s exports, current account, and rupee remains unclear. Cutting rates into this uncertainty could accelerate capital outflows.
Rupee Pressure: The rupee has depreciated 3.5% against the dollar in 2026, partly due to FII outflows. Further rate cuts could widen the interest rate differential with the US, adding pressure.
Food Inflation Risks: While headline CPI is at 4.1%, vegetable prices remain elevated, and the monsoon outlook for 2026 carries uncertainty.
Market Reaction
Bond markets were largely unmoved, with the 10-year government bond yield steady at 6.68%. Equity markets initially dipped 0.3% on the announcement but recovered as the accommodative stance and liquidity measures were seen as dovish signals.
Most economists expect the RBI to resume rate cuts in June 2026, provided global tariff risks subside and the monsoon forecast is favorable. Barclays and HSBC both forecast a cumulative 50bps of additional cuts in CY2026.