All eyes were on the RBI governor's speech on Wednesday as the April 2026 monetary policy arrives at a moment of renewed global turbulence. As expected, the governor decided to go with a "wait-and-watch" approach, focusing on stabilising the economy amid external risks.
Dramatic Turn of Events
What began as a year of strong macroeconomic fundamentals for India has, within weeks, been overshadowed by intensifying geopolitical risks, most notably the prolonged conflict in the Middle East. The implications are neither distant nor abstract. They are already transmitting through commodity markets, capital flows, and currency volatility.
Crude oil prices have firmed up, and with India's high import dependence, the pass-through to domestic fuel prices appears inevitable. This comes at a time when households are already grappling with elevated costs of essential fuels such as LPG and LNG, with cascading effects on sectors like transportation and food services. Fertiliser prices, particularly urea, are also inching upward, raising concerns for agricultural cost structures and potentially reversing the hard-earned moderation in food inflation.
A two-week ceasefire has triggered a sharp correction in oil prices, offering near-term relief. However, given the fragile geopolitical backdrop, this moderation is likely to be transient.
On the external front, the risks are equally pronounced. A widening current account deficit appears likely, driven by a higher oil import bill and softer remittance inflows from the Middle East. Simultaneously, global risk aversion could trigger capital outflows, placing pressure on the rupee and foreign exchange reserves. These dynamics complicate the inflation outlook, particularly through imported channels.
Domestically, the picture is mixed. While growth remains resilient, supported by public investment and improving credit offtake, corporate earnings have shown only modest recovery. The emerging global uncertainty threatens to weigh on margins, delay private capex cycles, and impact the business sentiment. Moreover, any fiscal response through increased subsidies to cushion consumers could widen the fiscal deficit, adding another layer of macroeconomic complexity.
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Rate Pause Justified
Against this backdrop, the Reserve Bank of India's decision to hold the policy repo rate reflects a calibrated and prudent approach. With inflation risks tilted to the upside but not yet fully materialised, the central bank has opted for a "wait-and-watch" stance.
Inflation remains a key risk, with CPI projected at 4.6% for 2026-27 and commodity prices likely to stay elevated even beyond the conflict. Elevated energy costs, along with potential El Niño conditions and base effects, could renew pressure on food prices. This allows policymakers to assess the persistence and magnitude of external shocks before committing to a directional shift.
The growth outlook for FY26 has been revised upwards from 7.4% to 7.6%. However, FY 27 has seen a downward revision in the first two quarters compared to the previous MPC meeting and is now estimated to be 6.9% for the year. A meaningful easing of geopolitical tensions and supply constraints could lead to an upward revision in the growth outlook.
Importantly, monetary policy at this juncture seems to be balancing two competing objectives: anchoring inflation expectations while not prematurely tightening financial conditions. A pause provides the RBI with flexibility, therefore, preserving policy space while signalling vigilance. It also aligns with the need to monitor currency movements and liquidity conditions more closely in an uncertain global environment.
In a world where volatility, not stability, is the dominant theme, the RBI's decision underscores a critical principle: sometimes, strategic restraint is the most effective form of action.
The article has been authored by Rumki Majumdar, economist at Deloitte India.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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