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Informist, Monday, Mar. 30, 2026

MUMBAI – The Reserve Bank of India is likely to keep the policy repo rate unchanged through this calendar year as long as the pump prices of fuel remain unchanged, Barclays said in a report Monday. Steady pump prices of fuel will ensure that the passthrough of the energy price shock to CPI will be muted, which will keep inflation aligned with the 4% target of the central bank, Barclays said. However, if crude oil prices settle around $100 per barrel for 2026, the central bank may be forced to hike the policy repo rate in the fourth quarter of the calendar year, the report said.

The rupee is likely to depreciate to 96.8 per dollar by December as India's current account deficit widens due to declining capital account surplus. The declining capital surplus is likely to lead to a large balance of payments deficit, which may put downward pressure on the rupee. 

The London-headquartered bank said the RBI's commentary after the policy meeting in April will be more in focus than the action of the central bank. The current policy repo rate is 5.25%.

"Not only is the starting point for growth, inflation, current account and Centre's fiscal deficit in a much better shape than at the onset of previous such crises, the recent cut in the excise duty for petrol and diesel essentially defers a pump price hike," the report said and added the passage of some Indian ships through the Strait of Hormuz and permission to buy Russian oil is also likely to keep the central bank from hiking rates.

The CPI inflation is expected to average 4% in financial year 2026-27 (Apr-Mar) on the revised base, up from 2.1% on year in FY26, according to the report. The inflation forecast assumes that the pump prices for petrol and diesel will be unchanged. 

The report also estimated India's GDP growth at 6.8% for FY27 on year, down from 7.6% in FY26, as energy rationing affects industrial growth, according to the report. If the pump price for petrol and diesel increases 10%, CPI inflation is likely to go up 48 basis points, the report said.

If international crude oil prices are $85 per barrel on average in 2026, the country's buffers might cushion the economy from energy shock, according to the report. However, if oil price exceeds $100 per barrel in 2026, inflation might rise above 4% and slow economic growth further.

The report highlights that the rupee has depreciated 2.7% since the war began and even though RBI has intervened to contain the volatility in the foreign exchange market, the currency remains under stress. However, Barclays does not expect the RBI to hike interest rates even as the rupee reels under geopolitical pressure, unless the currency depreciation pushes inflation up.  End

Reported by Suryash Kumar

Edited by Deepshikha Bhardwaj

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