RBI MPC meet today: Will repo rate change on Wednesday? What to expect

The six-member Reserve Bank of India (RBI) Monetary Policy Committee (MPC) is scheduled to meet today for the first bi-monthly policy review of fiscal year 2026-27. With the West Asia crisis overhead and rising oil prices, all eyes are on whether the MPC would alter the interest rates.

The MPC is expected to keep interest rates unchanged in the upcoming meeting on Wednesday. Policymakers are assessing the impact of the ongoing conflict in West Asia, which has affected the South Asian economy, weakening the rupee and bond markets.

Economists and traders anticipate the RBI will focus on stabilising financial markets, reassuring readiness to support the rupee and inject liquidity to manage bond yields. A Reuters poll conducted from March 23 to 26 showed that 69 out of 71 economists forecast the repo rate to remain steady at 5.25%.

The RBI’s MPC had cut rates by a total of 125 basis points in 2025 but paused in its February meeting. RBI Governor Sanjay Malhotra described the economy as being in a "Goldilocks" phase last December, with strong growth and low inflation, allowing room for accommodative policy. However, this outlook has been challenged by the worst energy shock in decades.

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Pranjul Bhandari, chief India economist at HSBC, noted that if the energy shock persists, the resulting growth slowdown could outweigh inflation pressures, resembling conditions seen during the COVID-19 pandemic. She advocated for a "neutral policy" stance that neither stimulates nor restricts demand.

Despite this, financial markets have started pricing in a more hawkish scenario. Since the outbreak of the Iran conflict, overnight indexed swap (OIS) contracts have increasingly factored in the possibility of rate hikes, with some expecting increases as early as this month.

Neeraj Gambhir, executive director for treasury and markets at Axis Bank, said swap rate pricing implies investors believe the RBI may need to tighten monetary policy to defend the currency. The RBI is also expected to release its first growth and inflation forecasts for the 2026-27 financial year, with economists predicting a downward revision of previous optimistic estimates.

Much will depend on oil price assumptions, with scenarios varying based on the duration of elevated energy costs and supply disruptions. HSBC estimated that if oil averages $80 per barrel, GDP growth could slow to 6.3% from an expected 7%, and to 6% if prices remain near $100. Inflation, which eased to 3.2% in February, may average around 5% if oil stays near $100 a barrel.

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JP Morgan’s chief India economist, Sajjid Chinoy, said rising inflation risks increase confidence that the RBI will keep policy rates on hold. He added, "The bar for any rate hike is very high and would require a sustained supply shock that pushes headline inflation well above target for the foreseeable future." India’s inflation target was reaffirmed last month at 4%, with a tolerance band of plus or minus 2 percentage points.

SBI Research Report said India is experiencing the consequences of the West Asia crisis, with the rupee trading above 93 per dollar and crude oil prices remaining above $100 per barrel. This situation has led to a rise in imported inflation across various states, compounded by forecasts of a potential ‘Super El Niño’ event that could exert further upward pressure on inflation. “As the situation is still evolving, we expect RBI to maintain the status quo in the upcoming policy,” it said.