Mumbai – The Reserve Bank of India’s (RBI) scope for further policy rate cuts in the current easing cycle has diminished significantly, economists say, as the West Asia crisis fuels concerns over imported inflation and potential supply disruptions. The shift in outlook comes as the impact of a favourable base effect on recent food price increases begins to wane.
The Monetary Policy Committee (MPC) is scheduled to announce its next rate decision on April 9. However, economists suggest that while an immediate response is unlikely, the possibility of further cuts has all but evaporated.
“The chances of a long pause for which the market was preparing before this crisis have certainly diminished,” said Indranil Pan, chief economist at Yes Bank. “Of course, the RBI would not take the call immediately. This proves fair to assume that there will be no action in April – or even June – but the chances of a cut are almost non-existent now.”
Global benchmark Brent crude rose to a four-year high of $120 per barrel on Monday amid fears of supply disruptions, but has since retreated to $90 per barrel following a historic release of emergency reserves by the International Energy Agency. However, prices remain elevated compared to around $73 per barrel prior to the US-Israel coalition’s actions against Iran on February 27.
The latest inflation reading, at 2.75% in January, will be followed by the February data release on Thursday, March 12. Consumer inflation has remained below the RBI’s 4% price stability mandate since January 2025, reaching a low of 0.25% in October 2025, largely due to the beneficial base effect on food prices.
Economists are now concerned that the waning of this base effect, coupled with potential supply-side disruptions, will lead to price increases. With the central bank already having implemented four rate cuts totaling 125 basis points since January 2025, bringing the rate to 5.25%, the room for further reduction is limited.
“Besides the inflationary pressures due to the Iran war, the banking system itself is not equipped to handle another cut since deposit rates cannot go any lower,” said Madan Sabnavis, chief economist at Bank of Baroda. “Food inflation, which was helped by a base effect, will also not get that benefit starting April. This, together with issues linked to LPG supply, airline fares and a possible El Nino condition will lead to higher inflation.”
The World Meteorological Organisation (WMO) has predicted El Nino weather conditions in the second half of 2026, potentially leading to higher temperatures and erratic monsoon patterns in India, further impacting food prices.
Sabnavis anticipates that inflation will begin to rise and exceed 4% in the first half of the next fiscal year, effectively eliminating any prospects for further rate cuts.
Rising oil prices and the risk of a widening fiscal deficit have also contributed to foreign portfolio outflows from India. So far this calendar year, foreign funds have withdrawn ₹35,808 crore from Indian markets, contributing to the rupee’s depreciation to a record low of ₹92.35 per dollar on Monday. A weaker rupee further constrains the RBI’s ability to lower rates.
“The situation remains fluid. However, the balance of risks has shifted away from an extended pause/ last rate cut to a pause plus hike,” said Anubhuti Sahay, head of India economic research at Standard Chartered. “It’s premature to pencil in a hike just as of now. But if oil prices remain in USD90-100 a barrel for a year and global rate hikes begin, the MPC might have to consider a hike sooner rather than later for external sector management.”