The Reserve Bank of India’s monetary policy committee is anticipated to keep policy rates stable in FY27 due to an expected increase in consumer price index inflation. Crisil Ratings reported that while food inflation is predicted to normalize, non-food inflation is likely to stay low, supported by reduced crude oil prices and the ongoing benefits of goods and services tax cuts in the first half of the year. The report forecasts a GDP growth of 6.7% in fiscal 2027 based on the 2011-12 series, with growth expected to align closely with the trend.
The agency emphasized that despite the projected rise in the deflator affecting real growth, the government’s emphasis on capital expenditure and signs of a revival in private investments are poised to propel growth. Additionally, the US-India trade agreement is seen as a positive development for the rupee, attracting foreign portfolio investors back into the market, with the rupee expected to stabilize at 89 per dollar by March 2027. While policy rates are likely to remain steady, the report suggests that the transmission of previous rate increases to broader interest rates will persist.
As of February 16, foreign portfolio investors had injected $2.8 billion into the market in February, alleviating pressure on the rupee, which had eased to around 90.7 from approximately 92 at the end of January. The Crisil Financial Conditions Index (FCI) remained stable at -0.5 in January, indicating that financial conditions were tighter than the long-term average since April 2010, with the FCI staying within a comfortable range, mainly due to actions taken by the Reserve Bank of India.
Open market operation purchases of government securities and the USD/INR buy-sell swap have helped maintain systemic liquidity. The report noted that softer lending rates, driven by the 125-basis point rate reduction in the current easing cycle, have supported the growth of bank credit.
