Ratings agency Crisil said on Friday that the Monetary Policy Committee of the RBI will likely cut policy rates once more this fiscal year, given the external pressures on growth and the benign inflation outlook.

According to Crisil, imposition of tariffs by the U.S. and a slowing global growth are expected to impact India’s exports in the second half of fiscal 2026. Elevated global uncertainty may also impact private investments. However, factors such as soft food inflation, repo rate cuts and tax relief measures are expected to provide some cushion. Inflation is expected to remain benign.

The ratings agency also said that the GST rationalisation is likely to provide some downside to inflation, but the overall impact will depend on the extent of the pass-through. “While food faces risks from excess rains in major kharif crop-producing states, the impact is yet to be seen. Plus, adequate reservoir levels augur well for Rabi production,” it added.

Additionally, the U.S. Federal Reserve’s rate cuts will aid monetary space. The Fed cut policy rates by 25 basis points in September, and S&P Global expects two additional 25-basis-point rate cuts in calendar year 2025. “Overall, we believe the FCI should remain within the comfort zone, with the cuts in the repo rate and the CRR supporting conditions. Fifty basis points of the announced 100 basis points of CRR cut have come into effect as of October 10. That said, some volatility in capital flows and the rupee is expected as the global situation remains uncertain.”

On the other hand, financial conditions remained stable in September, unchanged from August, according to Crisil’s Financial Conditions Index (FCI). September FCI of -0.6 was lower than the average of -0.4 that was witnessed this fiscal year.

A lower FCI value signifies more stringent financial conditions, whereas a higher value indicates looser conditions. Conversely, a negative value implies that the financial conditions are more restrictive than the long-term average, which has been measured since April 2010. The index has consistently remained within the range of one standard deviation from the mean, despite being negative in eight of the previous nine months.

Four factors exerted pressure on the FCI in September: foreign portfolio investment (FPI) outflows, a weaker rupee, a moderating surplus in systemic liquidity, and rising 10-year government security (G-sec) yields.

FPIs continued to withdraw from equities for the third consecutive month, albeit at a slower rate than in August, amidst persistent concerns regarding U.S. tariffs. Net inflows into the debt market experienced a slight decline. The outflows by FPIs exerted pressure on the rupee, resulting in its depreciation to an all-time low against the dollar. Tax-related outflows diminished the systemic liquidity surplus, thereby leading to an increase in short-term interest rates. Fiscal concerns and the pause in repo rate hikes since August contributed to an increase in the yield on the benchmark 10-year Government Securities (G-Sec). The term premium reached its highest level since January 2023.