Will RBI Cut Rate or Hike Rates in Its April Meet?
By Bajaj Broking Team
April 06, 2026
3 mins read
Market News
Synopsis:
The RBI’s April policy meet comes amid rising global uncertainties, with crude oil above $100 and the rupee under pressure. While the repo rate is expected to remain at 5.25%, focus shifts to the central bank’s outlook on inflation and growth. Liquidity measures and global cues will play a key role in shaping future policy direction.
The Reserve Bank of India's Monetary Policy Committee started its three-day meeting on April 6, 2026. The rate decision will be announced on April 8. The repo rate is currently at 5.25% and is widely expected to stay there. What has changed since the last meeting in February is the events around the decision. Crude oil prices have risen sharply, the rupee has come under pressure, and the conflict in West Asia has added uncertainty to the global outlook.
Given that the rate is unlikely to move, the more important question going into April 8 is what the RBI says about where inflation and growth are headed for the rest of FY27.
Current Policy Position
To understand the current position, it helps to look at what the RBI has done over the past year. Since February 2025, the central bank reduced the repo rate by a cumulative 125 basis points, bringing it to 5.25% in December 2025. The MPC then held the rate unchanged in August, October, and February 2026. April is expected to follow the same pattern.
The repo rate is the rate at which the RBI lends money to commercial banks. When it increases, banks pay more to borrow from the RBI and pass that cost on to customers through higher interest rates on home, car, and business loans. When it decreases, loans get cheaper and people and businesses tend to borrow and spend more. When it stays the same, the central bank is essentially saying it wants to wait and see how the economy responds to what has already been done.
Banks are still in the process of adjusting their lending rates, and the RBI wants to give that process time to complete before doing anything more. Until recently, the domestic situation supported that patience. Inflation had fallen to 3.21% in February 2026 under the new CPI series, which was comfortably below the RBI's 4% target.
Rising Global Pressures
The conflict in West Asia has escalated since February. Crude oil prices have crossed $100 per barrel, partly because the Strait of Hormuz, a key shipping route through which India imports at least 40% of its energy needs, faced closure. This has set off a chain of consequences for the Indian economy.
Higher oil prices feed into inflation in two ways. They directly raise fuel costs, pushing up transportation and production expenses across the economy. They also raise import costs since India buys most of its oil from abroad. When combined with a weakening rupee, the effect is amplified. The rupee has already fallen nearly 4% since the start of the year and has crossed the psychological level of ₹95 per dollar.
Commercial LPG prices were raised on April 1, following an earlier increase in domestic cylinders in March. Premium petrol prices have been raised for the first time in four years. Aviation turbine fuel prices have seen a staggered increase of 25%. Retail pump prices remain unchanged for now, after the government reduced central excise duty on petrol and diesel by ₹10 per litre to support state-owned oil marketing companies absorbing losses. However, this carries a fiscal cost of approximately ₹1.7 trillion in foregone revenue if maintained for the full year. Further retail pump price hikes remain possible, potentially as early as late April.
Beyond oil, there is the risk of a super El Nino weather event. India relies heavily on monsoon rains for agriculture. A weak monsoon reduces crop yields and pushes up food prices, which carry significant weight in India's inflation basket. These are the kinds of pressures that do not respond to rate adjustments and make the RBI's task considerably harder.
Balancing Inflation and Growth
Rising crude prices and the ongoing geopolitical situation have added pressure on financial markets and liquidity conditions. For now, the expectation is that the RBI holds rates in April and uses liquidity tools and targeted measures to manage the stress points in the system. A move towards tighter policy, meaning a rate hike, would only come into the picture if the current energy price shock starts feeding into broader inflation beyond fuel and transport costs.
The RBI faces a difficult balance. Raising rates would do little to fix the supply-side causes of inflation such as oil prices and freight costs. It would, however, hurt investment and consumption at a time when external pressures are already creating headwinds. Leaving rates unchanged carries the risk that imported inflation seeps into core inflation and inflation expectations over time.
Focus on Liquidity Measures
Even if the rate stays unchanged, the RBI has been active on the liquidity front. In March, the RBI injected nearly ₹2.4 lakh crore into the banking system through Variable Rate Repo operations. India's foreign exchange reserves stood at around $688 billion as of March 27, which covers approximately 10 months of imports. The RBI has also told banks to keep their net open position on the rupee at or below $100 million at the end of each business day, with banks required to meet this by April 10. These steps show that the central bank is working to manage liquidity and currency stability through tools other than the repo rate.
The central bank is likely to focus on liquidity management from two directions. The first is ensuring adequate liquidity in money markets and the banking system to prevent frictional shortages. The second is supporting working capital requirements for smaller businesses and exporters, particularly as freight and insurance costs have risen sharply following the escalation of the conflict.
Outlook on Economic Growth
Growth in FY27 is expected to moderate compared to FY26. A prolonged conflict in West Asia could weigh on these numbers through higher energy costs, supply chain disruptions, and slower export demand.
The Federal Reserve's policy direction also matters. If the Fed delays rate cuts or moves towards tightening, the RBI's ability to ease later in the year becomes more constrained. Any shift towards tightening in India will depend primarily on the trajectory of the rupee and whether second-round inflation effects become visible in the data.
Impact on Borrowers and Businesses
For anyone with a repo-linked home, car, or business loan, the April meeting is unlikely to bring any change to their EMI. The rate cuts that came through over the past year are still working their way into actual lending rates, and that process has not fully completed yet. Whether borrowing costs come down further will depend on how inflation moves in the coming months. For businesses, the near term looks stable in terms of credit costs. Beyond June, the picture is harder to read, given how much depends on the direction of crude oil prices and the broader global situation.
The commentary from the RBI Governor on April 8 and the minutes of the MPC meeting, to be released a fortnight later, will be closely watched for signals on the rate trajectory for the rest of FY27. In a global environment that has changed quickly, the central bank's assessment of where things are headed will matter more than the decision it takes today.
Published Date :
06 Apr 2026
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Content Partner - Dalal Street Investment Journal Wealth Advisory Private Limited
This article is for educational purposes only and should not be considered investment advice. Market investments are subject to risks. DSIJ Wealth Advisory Private Limited is a SEBI-registered Research Analyst (Reg. No: INH000006396) and Investment Adviser (Reg. No: INA000001142). Please consult your financial adviser before investing.
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