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The Reserve Bank of India (RBI) is likely to keep interest rates unchanged until at least October 2026, while India’s economic growth is expected to moderate to 6.6-6.8 per cent in FY27 amid global uncertainties, according to Bank of Baroda’s FY27 Economic Outlook.
The report said the central bank is unlikely to take any policy action over the next few months, although the possibility of a rate hike later in the financial year cannot be ruled out if incoming macroeconomic data warrants such a move.
“We do not expect any rate action from the RBI at least till October 2026, beyond which a rate hike is possible based on data,” the bank said during a webinar on the outlook for the Indian economy.
Bank of Baroda expects retail inflation, measured by the Consumer Price Index (CPI), to average 5.0-5.2 per cent in FY27, up sharply from an estimated 2.1 per cent in FY26. However, inflation is projected to remain within the RBI Monetary Policy Committee’s tolerance band. The report also expects the repo rate to stay in the 5.25-5.50 per cent range during the financial year.
On growth, the lender projects India’s GDP to slow from 7.7 per cent in FY26 to 6.6-6.8 per cent in FY27. Despite the moderation, it said domestic demand remains resilient and continues to support economic activity. Nominal GDP growth is expected to return to double digits at 10-11 per cent.
The report assumes that the impact of ongoing geopolitical conflicts will persist over the next six months, with crude oil prices averaging between $75 and $85 per barrel during FY27.
According to the bank, elevated oil prices, supply chain disruptions and weaker export demand remain the biggest downside risks to the economy. It also warned that second-round inflationary effects and a weaker-than-expected monsoon could push up prices of food items such as pulses and cereals.
Manufacturing growth is expected to moderate due to a high base, global supply chain challenges, and softer external demand. Bank of Baroda projects manufacturing growth at 6.5-7.5 per cent, while industrial production growth is likely to remain around 3-4 per cent.
Sectors such as petrochemicals, food processing, glass and ceramics, textiles, and chemicals may face pressure from higher input costs and supply bottlenecks. In contrast, machinery, automobiles, metals, infrastructure and construction are expected to remain relatively resilient.
The report also forecasts India’s 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 estimated at 11-13 per cent and deposit growth at 10-12 per cent.
Despite external headwinds, the bank identified several factors that could support growth in FY27, including a revival in private investment, continued government capital expenditure, robust services exports, benefits from bilateral trade agreements and sustained strength in the services sector.
