The Reserve Bank of India is expected to keep interest rates unchanged, with a greater focus on managing liquidity in 2026, according to a report by SBI Mutual Fund.
Despite crude oil prices hovering nearly 50% above the RBI’s assumed benchmark of $70 per barrel, the report suggests that the central bank is unlikely to tighten monetary policy anytime soon. It indicates that the threshold for a rate hike remains high, even amid rising energy costs.
Winners and Losers Across Sectors
The report highlights that elevated energy prices could benefit sectors like metals and mining, which tend to gain from such trends. On the other hand, industries heavily dependent on fuel—such as airlines, tourism, chemicals, fertilisers, and textiles—may face cost pressures.
Meanwhile, sectors like IT, telecom, pharmaceuticals, and power are seen as relatively stable and less exposed to energy price fluctuations.
Market Outlook and Recovery Potential
Encouragingly, the report notes that large-cap stocks are currently attractively valued. If energy prices ease—possibly due to geopolitical developments such as a potential agreement between the United States and Iran—markets could rebound quickly, potentially delivering early double-digit returns.
Liquidity and Growth Projections
The report also points to a likely widening of the balance of payments deficit in FY27, which may prompt the RBI to step up open market operations (OMOs) to maintain sufficient liquidity. Estimates suggest that ₹4.5–₹5 trillion in additional OMO purchases may be required to offset a projected ₹3.5 trillion deficit.
On the macroeconomic front:
- Real GDP growth is expected to slow from 7.8% in FY26 to around 6.5% in FY27.
- Nominal GDP growth could rise to 12–13%.
Inflation Risks Remain
Food inflation is flagged as a key risk, especially due to an unfavourable base effect and possible weather disruptions during the Kharif season. Overall inflation, measured by CPI, is expected to average around 5% in FY27, with some months potentially nearing 6%.
Geopolitical Concerns
The report also cautions that increasing geopolitical uncertainties may keep crude oil prices elevated for longer. This could lead countries to build larger reserves and maintain higher inventory levels, further sustaining price pressures.
In summary, while high energy prices pose risks to certain sectors, they also create opportunities—particularly in metals and mining—while the RBI is likely to stay cautious and maintain its current policy stance.
With inputs from IANS