Oil shock, inflation dampen rate-cut hopes

The prospects for further interest rate cuts in India have diminished significantly due to rising inflation pressures linked to global oil prices and supply chain disruptions stemming from the ongoing crisis in West Asia. Economists have noted that the Reserve Bank of India (RBI) is likely to maintain its current policy stance, particularly as inflation, which has been below the central bank's target of 4% since January 2025, is expected to rise again. A recent spike in Brent crude oil prices, which reached a four-year high of $120 per barrel, has raised concerns over imported inflation. Although prices have since eased, they remain elevated compared to earlier in the year. As the RBI prepares to announce its monetary policy decisions on April 9, experts suggest that the chances of a rate cut are virtually non-existent, especially considering the impact of external factors and previous rate cuts totaling 125 basis points since early 2025. Furthermore, projections of potential El Nino conditions in late 2026 could exacerbate food inflation, limiting the RBI's ability to maneuver in its monetary policy, while the banking system’s current deposit rates leave little room for any further cuts.