Bank of Baroda's FY27 Outlook suggests the RBI will hold policy rates until at least October 2026. India's GDP is seen growing at 6.6-6.8%, while retail inflation is projected to rise to 5.0-5.2% but remain within the tolerance band.
The Reserve Bank of India (RBI) is likely to keep policy rates unchanged at least till October 2026, while India's economy is expected to grow at a steady pace of 6.6-6.8 per cent in FY27 despite global uncertainties, according to Bank of Baroda's FY27 Economic Outlook.
The bank said it does not expect any rate action by the RBI till October 2026, although one rate hike may be possible later depending on incoming economic data. It added that while inflation is expected to move higher during FY27, it is likely to remain within the Monetary Policy Committee's tolerance band. Bank of Baroda projected retail inflation (CPI) at 5.0-5.2 per cent in FY27, compared with 2.1 per cent in FY26. It also expects the repo rate to remain in the 5.25-5.50 per cent range during the financial year. The bank shared this during their webinar on outlook on Indian Economy held on Monday.
GDP Growth Projections
The bank noted, "We do not expect any rate action from the RBI at least till Oct 26, beyond which rate hike is possible based on data". The bank said India's GDP growth is likely to moderate from 7.7 per cent in FY26 to 6.6-6.8 per cent in FY27. However, it noted that domestic growth remains broadly steady and continues to be supported by strong underlying drivers. According to the bank, nominal GDP growth is expected to return to double digits at 10-11 per cent in FY27.
Core Assumptions and Risks
Bank of Baroda said its projections assume that the impact of the ongoing war will continue to be felt for the next six months. It has assumed crude oil prices to average USD 75-85 per barrel during FY27.
The report highlighted that higher oil prices, supply chain disruptions and slower export growth remain the key downside risks to India's economy in FY27. It also warned that core inflation could face upward pressure due to second-round effects, while a weaker monsoon may increase prices of food items such as pulses and cereals.
Manufacturing Sector Outlook
On the manufacturing front, Bank of Baroda expects growth to moderate because of the base effect, disruptions in global supply chains and weaker demand conditions. Manufacturing growth is projected at 6.5-7.5 per cent, while industrial production growth is expected to remain around 3-4 per cent.
The report said sectors such as petro-based industries, food processing, glass and ceramics, textiles and chemicals could face pressure due to elevated inflation and supply chain bottlenecks. However, machinery, automobiles, metals, infrastructure and construction are expected to perform well.
Fiscal and Financial Outlook
Bank of Baroda also forecast the current account deficit to widen to 1.8-2.0 per cent of GDP in FY27 from 0.6 per cent in FY26. Fiscal deficit is projected at 4.7-4.8 per cent of GDP, while credit growth is expected at 11-13 per cent and deposit growth at 10-12 per cent.
Identified Growth Drivers
Despite the challenges, the report identified several growth drivers for FY27, including a revival in private sector investment in infrastructure-related sectors, continued government capital expenditure, strong services exports, benefits from bilateral trade agreements and a resilient services sector. (ANI)
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