In an expected move, the Monetary Policy Committee (MPC) unanimously decided to keep the policy repo rate unchanged at 5.25% and retained the ‘neutral’ policy stance.
The committee noted that the ongoing conflict in West Asia poses unprecedented uncertainty for the global economy and is likely to be a drag on domestic production in FY27 as supply chain gets disrupted. However, the committee also noted that India’s macro fundamentals are on a much stronger footing than previous crises episodes and therefore its in a much better position to withstand shocks.
The RBI indicated that ‘it remains vigilant, closely monitoring incoming information’ and that the neutral stance provides it with the flexibility to respond as per need of the situation based on incoming data.
On Growth: The RBI highlighted global growth could be lower and prices higher due to supply chain disruptions due the conflict in West Asia. It also noted that globally, sovereign bond yields which were already elevated before the conflict started have hardened further due to concerns around inflation.
On domestic front, RBI mentioned that growth was on a strong footing before the conflict started due to several measures taken by the Government and the RBI. However, elevated energy prices and constrained supply will adversely affect domestic production in
| GDP Growth (%) | Feb-26E | Apr-26E |
|---|
| FY26 | 7.4* | 7.6** |
| Q1FY27 | 6.9# | 6.8 |
| Q2FY27 | 7.0# | 6.7 |
| Q3FY27 | | 7.0 |
| Q4FY27 | | 7.2 |
| FY27 | | 6.9 |
Source: RBI; * according to First Advance Estimates (FAE). ** according to Second Advanced Estimates (SAE). #: as per old GDP series
FY27. The growth however will be supported by ongoing positive impact of GST rationalisation, robust services sector growth and rising capacity utilisation. Taking all this into consideration, GDP growth for FY27 is projected at 6.9% YoY (compared to 7.6% in FY26). The RBI also highlighted that the risk to this forecast is tilted towards the downside if there is further escalation in the conflict.
On Inflation: The RBI indicated that uptick in January 2026 and February 2026 CPI prints (under the new CPI series) was primarily due to the base effect and overall inflation momentum was benign before the conflict started as core inflation ex of precious metals has averaged just 2.1% in Jan 26-Feb 26. It further noted that the ongoing conflict and large volatility in international energy and commodity prices imparts considerable uncertainty to near term inflation
| CPI (%) | Feb-26E | Apr-26E |
|---|
| FY26 | 7.4* | 7.6** |
| Q1FY27 | 4.0* | 4.0 |
| Q2FY27 | 4.2* | 4.4 |
| Q3FY27 | | 5.2 |
| Q4FY27 | | 4.7 |
| FY27 | | 4.6 |
Source: RBI, *as per old CPI series
outlook. Moreover, the RBI also highlighted that possibility of El Niño conditions this year will add further uncertainty to food prices as El Niño conditions adversely affect south-west monsoon and hence domestic food production. Taking all this into consideration, CPI inflation for FY27 is projected at 4.6% (as against average of 1.9% in 11MFY26). Notably, the RBI has also given core inflation (ex-food and fuel) projection for the first time and expects it to average at 4.4% in FY27.
Conclusion and Outlook
The fixed income market rallied sharply (even before RBI announcement) driven by the announcement of West Asia conflict ceasefire and subsequent plunge in oil prices. Further, RBI’s decision to keep the policy rate and stance unchanged was largely on expected lines. RBI governor’s comment on real rates still being high and probability of rates being lower for longer along with only marginal upward revision in inflation forecast for FY27, moderated the rate hike expectations and pulled yield lower. Moreover, RBI’s assurance that it will continue to be proactive and pre-emptive in liquidity management and ensure sufficient liquidity also went well from yields perspective.
Going forward, while the uncertainty is likely to remain high, we believe medium term outlook on Indian fixed income market remains favorable, considering:
- Fall in oil prices should ease pressure on CAD and INR and could result in capital flows improving, thus easing pressure on BoP.
- Risk of growth surprising to downside due to supply chain disruption along with expectation of inflation remaining within comfortable range , reduces risk of significant rise in policy rates
- Liquidity is likely to be in ample surplus in the coming few months in view of constant assurance by RBI governor’s to maintain sufficient surplus to meet the real economic needs.
- Supply and demand dynamics for SLR is favourable placed in view of likely revival of demand from Banks (due to lower SLR holding) and Pension funds. Further, to maintain sufficient liquidity, RBI might be required to conduct open market purchases of Gsec in FY27 as well.
Key risks to the favorable outlook
- Reescalation of tension of West Asia conflict resulting in oil prices higher than forecasted
- El Nino conditions in FY27 leading to large deficiency in southwest monsoon and reduced crop production
- Slight risk of fiscal slippage remains as the projected oil price could result in additional fertilizer subsidy and lower revenue due to reduction in excise duty. The possibility of expenditure rationalization and higher dividend from RBI is likely to cushion impact, to a large extent.
Entire Gsec yield curve has shifted lower driven by ceasefire between US and Iran and slightly dovish policy. At the current levels of yield, the entire yield curve appears favorably placed. In view of ample surplus liquidity and likelihood of capital flows, short end of the curve (up to 4 years) is likely to shift lower in the near to medium term. Thus, in our view, one can consider investing in the short to medium duration funds. Further, at the long end, in view of reduced supply, possibility of improvement in pension demand (relative to last year) and relatively higher absolute levels of yields (which possibly factors in most of negatives) one can also consider investing in longer duration funds in line with individual risk appetite.
| Glossary |
| BPS | Basis Points (1 bps = 0.01%) |
| CPI | Consumer Price Index |
| CAD | Current Account Deficit |
| CRR | Cash Reserve Ratio |
| GDP | Gross Domestic Product |
| LCR | Liquidity Coverage Ratio |
| MSF | Marginal Standing Facility |
| PMI | Purchasing Manager Index |
| RBI | Reserve Bank of India |
| SDF | Standing Deposit Facility |
| SLR | Statutory Liquidity Ratio |
| AE | Advanced Economies |
| GST | Goods and Services Tax |
DISCLAIMER
The views of HDFC Asset Management Company Limited, Investment Manager for HDFC Mutual Fund expressed herein as of April 08, 2026 are based on internal data, publicly available information and other sources believed to be reliable. The source for this document is the Bi-monthly Monetary Policy Statement, 2024-25, dated April 08, 2026 published by the RBI. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only and is not investment advice. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future. HDFC Mutual Fund/HDFC AMC is not guaranteeing/ offering/communicating any indicative yields or guaranteed returns on investments made in the scheme(s). Neither HDFC AMC and HDFC Mutual Fund (the Fund) nor any person connected with them, accept any liability arising from the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice.
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