RBI Expected to Maintain Policy Rates Amid High Oil Prices: Report

The Reserve Bank of India (RBI) is projected to keep policy rates unchanged in 2026, focusing on liquidity tools, despite crude oil prices exceeding the bank’s $70 per barrel assumption by 50%, according to a report. SBI Mutual Funds highlighted that while current oil prices are elevated, the likelihood of monetary tightening remains high.
Sectors such as metals and mining are anticipated to benefit from the surge in energy prices, while industries like airlines, tourism, chemicals, fertilisers, and textiles may face adverse effects. The report suggested that IT, telecom, pharma, and power sectors are comparatively safer investments.
The report emphasized that with large-cap valuations currently low, a potential decrease in energy prices could trigger a rapid market rebound and bolster early-teen returns for Indian large-cap indices. It also mentioned that any resolution between the US and Iran could mitigate the impact of the energy shock on earnings and the macro environment, potentially already factored into equity prices.
In the fiscal year 2027, a substantial balance of payments deficit might prompt the RBI to conduct Open Market Operations (OMO) purchases to maintain liquidity at existing surplus levels. The report estimated a need for Rs 4.5–Rs 5 trillion in additional OMO purchases to sustain liquidity levels, assuming a Rs 3.5 trillion deficit.
The firm’s projections indicate a slowdown in real GDP growth from an estimated 7.8% in FY26 to around 6.5% in FY27, with nominal GDP expected to increase from 9% to approximately 12–13%. Concerns over food inflation were raised due to an unfavorable base and potential disruptions during the Kharif season.
The report forecasted that Consumer Price Index (CPI) inflation would average around 5% in FY27, with certain months possibly recording readings nearing 6%. It also cautioned about the rising probability of more frequent geopolitical disruptions leading to precautionary inventory builds and strategic reserve expansions, thereby sustaining elevated crude prices for an extended period.