By:- Sakshi Gupta, Principal Economist, HDFC Bank

RBI as expected keeps the policy rate unchanged, taking comfort from the recent growth momentum and likely positive spillovers from the trade deals announced. This was reflected in the upward revision in its GDP growth forecasts for H1 FY27. We see 20-30bps upward revision in our FY27 growth forecast of 6.9% on the back of the recent trade deal announcement.

On the other hand, the RBI also revised up its inflation forecasts for H1 FY27 and cautioned against upside risks to inflation. We see that beyond the rise in precious metal prices, increase in base metal prices and input costs along with any risks due to weather related disruptions raise the probability of further upside revisions to inflation estimates going forward. Today’s communication confirms our view that this is likely to be the end of the rate cut cycle and 5.25% could be the terminal rate going into FY27.

As system liquidity conditions improve, on the back of recent RBI measures, we do not anticipate further announcements on liquidity in Q4 FY26 and anticipate conditions to remain broadly favourable to enable transmission. On the other hand, supply and demand mismatch, rising global yields, and end of the rate cut cycle trade could keep bond yields elevated.