Downside growth risks outweigh inflation concerns, RBI likely to hold rates this fiscal: Crisil

New Delhi [India]: The Reserve Bank of India's Monetary Policy Committee (MPC) is likely to maintain current policy rates through the fiscal year as concerns over economic growth outweigh risks from inflation, according to a report by Crisil Intelligence.

The report stated that the downside to growth is a bigger concern than upside risks to inflation in the current environment.

It noted that producers are bearing the brunt of higher energy and input costs, while the government has limited the increase in retail energy prices, thereby containing inflation at the consumer level.


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"Our base case expectation is the Monetary Policy Committee (MPC) would maintain the policy rates this fiscal," the report said, adding that the central bank is likely to continue its cautious approach.

The MPC had kept policy rates unchanged at its April meeting and maintained a neutral stance, providing flexibility for future policy actions. However, the report cautioned that a prolonged geopolitical conflict could reduce the available monetary space for the central bank.

On fiscal health, the report highlighted that the government has targeted a reduction in the Centre's fiscal deficit to 4.3 per cent of GDP in fiscal 2027, down from 4.4 per cent of GDP in fiscal 2026 (revised estimates). It also noted that the government met its fiscal deficit target for fiscal 2026.

Gross market borrowing is projected to increase to Rs 16.1 lakh crore in fiscal 2027 from Rs 14.6 lakh crore in fiscal 2026 (revised estimates). Around 51 per cent of the borrowing is expected to be undertaken in the first half of the fiscal year.

The report also provided an outlook on the external sector, stating that the current account deficit (CAD) is expected to widen to 1.5 per cent of GDP in fiscal 2027 under the base case, compared with a projected 0.8 per cent of GDP in fiscal 2026. In an alternative scenario, the CAD could widen further to 2.0 per cent of GDP.

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The widening of the CAD is likely to be driven by a higher import bill due to elevated crude oil prices, as well as gas and fertiliser imports in the alternative case. Additionally, disruptions caused by the ongoing conflict could impact exports, leading to a rise in the goods trade deficit.

However, the report noted that a healthy services trade surplus is expected to limit the extent of the widening in the current account deficit. It also pointed out that the current account deficit had narrowed to 1.0 per cent of GDP in the third quarter of fiscal 2026, compared with 1.3 per cent in the corresponding quarter of fiscal 2025.