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Informist, Wednesday, Apr. 8, 2026

 

MUMBAI – Sandeep Yadav, head of fixed income, DSP Mutual Fund, said the following on the Reserve Bank of India's first bi-monthly monetary policy statement for 2026-27 (Apr-Mar) detailed Wednesday:

 

The RBI policy was as per expectation. It was not even mildly hawkish from any sense. The RBI continued its dovish call on liquidity. In fact, RBI's statement 'will continue to be proactive in liquidity management' ensures that policy remains soft rather than hard. For perspective, liquidity is so abundant that overnight rates are much lower than repo (rate). In fact, the RBI showed concerns on CP/CD (commercial paper/certificates of deposit) rates remaining elevated.

 

So, where is the risk of rate hikes? The RBI increased inflation expectation due to Iran war. But showed concerns for growth. The RBI put (FY27) CPI projection at 4.6% (with upside risks), but expressed concerns on (FY27) growth at 6.9% (with further downside risks) due to fuel supply constraints. But RBI also added the risk of financial market volatility to growth. That probably was not par for the course.
 
Moreover, the RBI expressed risk of Iran war becoming systemic when they said that 'initial supply shock may potentially become a demand shock'. Thus, the growth fears don't look transitory. On the other hand, core inflation projection is not high at 4.4%. In fact, the very mention of core inflation shows that RBI is willing to look through the transitory CPI rises due to agri & fuel shocks.

The Iran war will drive RBI's future trajectory. But it will be a wrong conclusion that a long Iran war necessarily means higher rates. It could also mean lower growth, and thus lower rates. We believe it is too early to even talk about rate hikes. El Nino has found its space in Gov Speech. This should drive the conversations for next few months. However, India has strong buffers in cereals and the El Nino risks, while significant, are much lesser than in the past.
 
Today yields have fallen 10-15 basis points across the curve. We maintain our view that money market segments will trend even further lower. The duration will remain at whims of Mr. Trump and Iran war. But the latest ceasefire shows the risks are that yields should gravitate slightly lower due to lower expected (i) lesser inflation, (ii) fiscal expansion, and (iii) global financial markets turmoil.  End

 

Compiled by Shumaila Firoz 

Filed by Ashish Shirke

 

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