RBI likely to keep rates unchanged till October, India's GDP to moderate to 6.6-6.8% in FY27: BoB Outlook

The Reserve Bank of India (RBI) is likely to hold its policy rates steady until at least October 2026, with potential for a rate hike thereafter depending on economic data, according to Bank of Baroda's FY27 Economic Outlook.

India's economy is forecast to grow at a steady pace, though moderating to 6.6-6.8% in fiscal year 2027 from an estimated 7.7% in FY26. Despite global uncertainties, domestic growth drivers remain strong, with nominal GDP growth expected to return to double digits at 10-11% in FY27. Bank of Baroda projects retail inflation (CPI) to be between 5.0-5.2% in FY27, a notable increase from 2.1% in FY26, while the repo rate is expected to stay within the 5.25-5.50% range.

The outlook assumes the impact of ongoing global conflicts will persist for the next six months, with crude oil prices averaging USD 75-85 per barrel in FY27. Significant downside risks to India's economy include elevated oil prices, disruptions to global supply chains, and a slowdown in export growth. Additionally, core inflation could face upward pressure from second-round effects, and a weaker monsoon might drive up prices for essential food items like pulses and cereals.

On the manufacturing front, growth is expected to moderate due to base effects, global supply chain issues, and weaker demand. While sectors like petro-based industries, food processing, and textiles may face pressure, industries such as machinery, automobiles, metals, infrastructure, and construction are anticipated to perform well. The current account deficit is projected to widen to 1.8-2.0% of GDP in FY27, and the fiscal deficit is forecast at 4.7-4.8% of GDP. Credit growth is expected at 11-13%, with deposit growth at 10-12%.

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We do not expect any rate action from the RBI at least till Oct 26, beyond which rate hike is possible based on data