HSBC Global Investment Research said the Reserve Bank of India (RBI) has shifted to a phase of policy stability after unanimously holding the policy repo rate at 5.25% in its latest monetary policy review. The decision, taken by all six members of the Monetary Policy Committee (MPC) on Friday, was in line with expectations following a cumulative 125 basis points of rate cuts delivered during the current easing cycle.

HSBC said the RBI appears to have pivoted to maintaining steady policy rates for the foreseeable future. The brokerage believes the central bank is unlikely to provide additional growth stimulus unless the economy faces a significant growth shock.

Supportive for growth?

HSBC attributed the RBI’s pause partly to recent macro developments, including the Union Budget, which marked the end of aggressive fiscal consolidation, and the announcement of trade agreements with the European Union and the United States. These developments, the report said, could prove supportive for growth over time, reducing the need for further monetary easing.

The RBI reinforced this policy shift by revising its growth and inflation forecasts even ahead of new data revisions expected later this month. On inflation, the central bank raised its projection for Q4 FY26 from 2.9% to 3.2% and nudged up its inflation forecast for the first half of FY27 from 4.0% to 4.1%. On the growth front, the RBI increased its FY27 first-half growth forecast by 20 basis points to 7.0%.

HSBC noted that while the RBI acknowledged rising global bond yields, it also highlighted continued transmission of policy easing into lending and deposit rates within the banking system. The central bank reiterated its intent to keep the overnight call rate aligned closely with the repo rate.

Inflation forecasts

However, the brokerage stressed that the RBI has not turned hawkish. It pointed out that the upward revision in inflation forecasts was largely driven by higher precious metal prices, which contributed 60–70 basis points to inflation. Excluding this factor, inflation conditions remain benign.

The RBI also reiterated its commitment to proactive liquidity management, including pre-empting fluctuations arising from government cash balances, currency in circulation, and foreign exchange interventions. HSBC said this pre-emptive stance could have a positive impact on market sentiment.

Further underscoring the absence of a hawkish tilt, one MPC member, Dr. Ram Singh, continued to call for a shift in stance from neutral to accommodative.

No more changes in repo rate through FY27

HSBC expects no further changes in the repo rate through FY27, adding that the RBI is likely to remain agile in providing liquidity support, particularly in the event of shocks. A stronger and more stable rupee could also help ease liquidity conditions, the report said.

Devang Shah, Head – Fixed Income, Axis Mutual Fund, said, "The RBI’s policy outcome closely mirrors our pre-policy expectations. Favourable trade deal announcements, alongside the highly disciplined Union Budget have strengthened India’s medium-term macro-outlook and laid the foundation for a more durable growth cycle into FY27. While rising global commodity prices, particularly in base metals, could pose upside risks to inflation if growth momentum accelerates in second half of FY26–27, these pressures remain contingent on the strength of domestic demand."

Shah also said, "Importantly, improved trade dynamics are expected to support India’s current account and balance of payments position, keeping the Rupee relatively less vulnerable and reducing the need for sustained RBI intervention in the FX market, thereby limiting liquidity leakage. We expect 10-year GSec to trade in a range of 6.6-6.8% for the first half of 2026 and 6.75-7% in the second half of 2026. In the near term, markets will be guided by lower inflation, strong growth and possibility of inclusion in Bloomberg indices, which may provide a tactical entry sometime this year for long bond investing."

HSBC Global Investment

RBI pivots to steady rates after 125 bps easing cycle: HSBC Global Investment report