Good morning and Namaskar. Let me welcome you all to the first policy of 2026-27 at a time when the global economy is facing unprecedented challenges from heightened geo-political tensions, the conflict in West Asia and the disruption in global supply chains. 2. Before the outbreak of the conflict, India’s macroeconomic fundamentals exuded confidence with buoyant growth and low inflation. Conditions turned adverse in March with the widening of the conflict zone and its intensification. The fundamentals of the Indian economy are on a stronger footing at the current juncture than in previous crisis episodes as well as relative to many other economies, providing it with greater resilience to withstand shocks. 3. Global growth faces increasing downside risks as the sharp rise in energy prices and shortages of inputs for various industries have stoked inflation fears and pushed up the geopolitical risk premium in oil markets. Heightened uncertainty precipitated by the ongoing conflict is weighing on the outlook. Safe-haven flows have exerted depreciation pressure on currencies of major economies as the US dollar has strengthened. While commodity prices, such as of metal and gold, have moderated, financial markets have become more volatile. Equities registered a broad-based correction. Sovereign bond yields, already elevated due to long-run fiscal sustainability concerns, driven by inflation fears, have hardened across major economies. Decisions of the Monetary Policy Committee (MPC) 4. The Monetary Policy Committee (MPC) met on the 6th, 7th and 8th of April to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25 per cent; consequently, the standing deposit facility (SDF) rate remains at 5.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.50 per cent. The MPC also decided to continue with the neutral stance. 5. I shall now briefly set out the rationale for these decisions. 6. The MPC noted that since the last policy meeting, geopolitical uncertainties have heightened significantly. Headline inflation remains contained and below the target. However, upside risks to the inflation outlook, driven by increased energy price pressures and probable weather disturbances affecting food prices, have increased. Core inflation pressures remain muted, although supply chain dislocations and the risk of second-round effects render the future inflation trajectory uncertain. 7. The MPC further noted that high frequency indicators till February, 2026 suggest the continuation of strong momentum in economic activity. Growth impulses continue to be supported by robust private consumption and investment demand. However, the West Asia conflict is likely to impede growth. Higher input costs associated with increase in energy prices and international freight and insurance costs along with supply-chain disruptions that would constrain availability of key inputs for downstream sectors, would impair growth. The Government has taken several measures targeted at supporting exports and protecting supply chains. This should mitigate the adverse impact of the conflict. 8. The MPC opined that the intensity and the duration of the conflict and the resultant damage to the energy and other infrastructure add risk to the inflation and growth outlooks. However, the fundamentals of the Indian economy are on a stronger footing, providing it with greater resilience to withstand shocks now than in the past. The economy is confronted with a supply shock. It is prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook. Accordingly, the MPC voted to keep the policy rate unchanged even as it remains vigilant, closely monitoring incoming information and assessing the balance of risks. The MPC also decided to continue with the neutral stance, retaining the flexibility to respond judiciously to incoming information. Assessment of Growth and Inflation Impact of the West Asia Conflict on the Indian Economy 9. Before I provide an assessment of growth and inflation, let me briefly elucidate on the channels of transmission through which the Indian economy may get impacted by the ongoing conflict. First, elevated crude oil prices could increase imported inflation and widen the current account deficit. Second, disruptions in energy markets, fertilisers and other commodities may adversely impact industry, agriculture and services, reducing domestic output. Third, heightened uncertainty, increased risk aversion and safe haven demand could impact domestic liquidity conditions, economic activity, consumption and investment. Fourth, weaker global growth prospects may dampen external demand and reduce remittance flows. Finally, adverse spillovers from global financial markets could tighten domestic financial conditions and raise the cost of borrowing. Overall, the initial supply shock can potentially transform into a demand shock over the medium term if the restoration of supply chains is delayed. Growth 10. As per the new GDP series (base year 2022-23), real GDP growth for 2025-261 is estimated at 7.6 per cent. This corroborates the underlying strong momentum in economic activity, supported by robust consumption and investment2, amidst supportive policy measures, ongoing structural reforms, and favourable financial conditions. 11. Going forward, elevated energy and other commodity prices, as also shocks to availability of inputs due to disruptions in the Strait of Hormuz are likely to impact growth in 2026-27. The Government has, however, been proactive in ensuring supply of inputs across critical sectors to minimise the impact of supply chain disruptions.3 On the other hand, sustained momentum in services sector, persisting impact of GST rationalisation, and healthy balance sheets of financial institutions and corporates should continue to support economic activity. The agricultural sector's prospects are supported by healthy reservoir levels.4 Business expectations remain optimistic,5 and leading indicators point towards continued resilience in manufacturing and services sectors.6 Moreover, the Government’s focus on scaling up domestic manufacturing in several strategic and frontier sectors augurs well for India’s ensuing growth trajectory. 12. On the demand side, private consumption in 2026–27 is expected to be supported by discretionary spending. Rural demand remains robust.7 It should gain further traction on the back of favourable agricultural conditions and a healthy labour market.8 Urban consumption is likely to strengthen further, aided by the beneficial impact of GST rationalisation and buoyant services sector activity. While the government’s thrust on infrastructure spending continues,9 the revival in private sector investment is expected to sustain on the back of high capacity utilisation,10 strong credit growth11 and benign financial conditions. On the external front, merchandise exports could be adversely impacted from disruptions to key shipping routes, the concomitant rise in freight and insurance costs and lower global demand on account of the conflict. However, merchandise exports may benefit from the recent trade agreements, while services exports12 are expected to remain resilient. 13. Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 6.9 per cent, with Q1 at 6.8 per cent; Q2 at 6.7 per cent; Q3 at 7.0 per cent; and Q4 at 7.2 per cent. Further escalation and wider spread of the conflict, heightened volatility in global financial markets and weather-related events, however, weigh on the domestic growth outlook. Risks to the baseline projections are tilted to the downside, with uncertainty remaining elevated due to the ongoing West Asia conflict. Inflation 14. In January-February, headline inflation continued to remain below target (2.7 per cent and 3.2 per cent, respectively), with food group recording inflation13 vis a vis a deflation in the previous four months14. Inflation in fuel items15 was modest. Core inflation was at 3.7 per cent16 and the underlying price pressures benign, as evident from the much lower core inflation excluding precious metals at 2.1 per cent. 15. Turning to the inflation outlook, recent spikes in energy prices due to the conflict have emerged as a risk. Although retail prices of petrol and diesel have remained unchanged so far, the pass-through of higher global energy prices has resulted in some price increases in a few other fuel items.17 Food price outlook remains comfortable in the near term with robust rabi production, adequate reservoir levels and comfortable buffer stocks of foodgrains18. The likely emergence of El Niño conditions could pose a risk.19 Considering all these factors, CPI inflation for 2026-27 is projected at 4.6 per cent with Q1 at 4.0 per cent; Q2 at 4.4 per cent; Q3 at 5.2 per cent; and Q4 at 4.7 per cent. Core inflation is projected at 4.4 per cent. Excluding precious metals, core inflation is even lower indicating that underlying inflation pressures are expected to remain contained. The risks are on the upside. External Sector 16. Global trade is expected to witness a slowdown in growth during 2026 as compared to 2025, due to the lingering tariff related uncertainties, ongoing West Asia conflict and elevated energy prices.20 India’s merchandise exports contracted by 0.2 per cent during January-February 2026 on a year-on-year (y-o-y) basis, impacted by export contraction in key markets21. Merchandise imports recorded a double-digit growth of 22.2 per cent, largely driven by higher gold imports22, resulting in a widening of the trade deficit.23 Expected robustness in services exports24 and inward remittance receipts25 during Q4:2025-26 should keep India’s current account deficit moderate and within the sustainable level in 2025-26. Rising global uncertainties and elevated prices of key energy commodities pose some upside risks to India’s current account deficit in 2026-27. The recent bilateral and regional trade agreements with major trading partners are expected to boost India’s trade and investment opportunities, widen and diversify its trading partners and integrate India into global value chains.26 17. On the external financing front, gross foreign direct investment (FDI) witnessed strong growth, while net FDI showed improvement.27 India remains an attractive destination for greenfield FDI projects.28 Foreign portfolio investment (FPI) to India, driven by outflows in the equity segment, recorded net outflows of US$ 16.5 billion in 2025-26, followed by outflows of US$ 5.4 billion in 2026-27 (till April 6).29 Flows under external commercial borrowings and non-resident deposits moderated as compared to 2024-25.30 As on April 3, 2026, India’s foreign exchange reserves stood at US$ 697.1 billion. These are adequate in terms of the standard metrics of reserve adequacy including import cover (about 11 months) and external debt (91.1 per cent). Overall, India’s external sector indicators remain favourable.31 Nevertheless, elevated global geopolitical, trade and investment uncertainties require continuous vigil of the evolving developments. 18. Despite stronger macroeconomic fundamentals, the Indian rupee in 2025-26 depreciated more than the average in the previous years. In this regard, let me reiterate that our exchange rate policy remains unchanged. Specifically, intervention in the foreign exchange market is aimed at smoothening excessive and disruptive volatility without targeting any specific level or band for the exchange rate. This is consistent with our long-standing policy of the exchange rates being market-determined. The RBI stands committed to this policy and would judiciously contain excessive or disruptive volatility to ensure that self-fulfilling expectations do not exacerbate currency movements beyond what is warranted by fundamentals. Liquidity and Financial Market Conditions 19. System liquidity, as measured by the net position under the Liquidity Adjustment Facility (LAF), stood at an average daily surplus of ₹2.3 lakh crore since the last MPC meeting.32 Since then, the weighted average call rate (WACR) traded in the lower half of the corridor except towards end-March33. Short term money market rates, especially those of commercial papers and certificates of deposit, remained elevated34. G-Sec yields remained largely rangebound with a softening bias in February but firmed up thereafter on account of the ongoing conflict, hardening global yields and the rise in energy prices35. Transmission in the credit market remained satisfactory.36 20. To ensure sufficient liquidity in the banking system, the Reserve Bank proactively undertook durable and transient liquidity measures37. Going ahead, we will continue to be proactive and pre-emptive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy. Financial Stability 21. The system-level financial parameters related to capital adequacy, liquidity, asset quality and profitability of Scheduled Commercial Banks (SCBs) continue to remain healthy.38 Similarly, the system-level parameters of NBFCs too are sound, with adequate capital position and improved GNPA ratios39. 22. As per the latest available data, credit from all sources grew at 14.3 per cent (y-o-y) as compared to 11.7 per cent (y-o-y) a year ago40. Bank credit growth maintained its upward trajectory41, and remained broad-based. Additional Measures 23. I shall now announce some measures related to Ease of Doing Business, capital adequacy, and market development. Promoting ease of doing business 24. There are three measures proposed to promote ease of doing business. 25. First, to facilitate better utilisation of Bank Board’s time, after a comprehensive review of all our extant instructions, we propose to revise and rationalise the matters requiring its attention. 26. Second, you would recall that we had recently undertaken a detailed exercise, to consolidate over 9000 regulatory instructions into 238 Master Directions. A similar consolidation exercise has now been completed for all our supervisory instructions. 27. Third, to facilitate ease of doing business by MSMEs, we propose to dispense with the requirement of due diligence while onboarding them on TReDS platforms. Supporting Capital Adequacy 28. There are two measures regarding capital adequacy of banks. 29. First, it is proposed to remove the condition regarding NPA provisioning for inclusion of quarterly profits in CRAR computation. 30. Second, in view of the developments in prudential framework over the years, it is proposed to dispense with the requirement to maintain an Investment Fluctuation Reserve (IFR) as an additional buffer to hedge against depreciation in the value of investments. Development of Money Market 31. For further development of the term money market, we have decided to permit certain additional categories of non-bank entities in this market segment. At present, only banks and standalone primary dealers (SPDs) are eligible to participate in this market. We are also enhancing the borrowing limit of SPDs in the term money market. Concluding Remarks 32. To conclude, global economic conditions and sentiments have soured after the outbreak of the West Asia conflict. These have adversely impacted the growth-inflation outlook. As reiterated before, we shall remain vigilant of the evolving situation and put in place policies that prioritise the best interest of the economy. 33. Thank you. Namaskar and Jai Hind. (Brij Raj)
Chief General Manager Press Release: 2026-2027/37
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