Analysts believe that for Indian markets in the coming months, the more significant issue is not the repo rate, but the rupee's ability to withstand additional geopolitical pressure before the central bank is forced to intervene.
The recent stability of Indian stocks was driven by reduced geopolitical concerns and moderate oil prices. Nevertheless, analysts warn that this calm is conditional, as any adverse events in the Middle East that could cause a surge in crude oil prices are capable of negatively affecting market sentiment and limiting further growth.
The Reserve Bank of India (RBI) is also closely monitoring developments in the Middle East that could once again raise oil prices. Meanwhile, the central bank has lowered its forecast for consumer price inflation (CPI) for the 2026–27 fiscal year from an initial 5.1% to 5%, while simultaneously raising the real GDP growth forecast to 6.7% from the previous 6.6%.
Sachin Savrikar, Managing Partner at Artha Bharat Investment Managers, believes that if the conflict escalates and crude oil prices continue to rise, leading to a strengthening dollar, the RBI may be forced to react even before the next scheduled meeting.
According to Savrikar, the main problem for Indian markets in the coming months is not the repo rate, but how much geopolitical pressure the rupee can withstand before the central bank begins more decisive intervention. He emphasized that intervention will initially focus on protecting the rupee using liquidity tools and direct market impact, and only after that will interest rates be considered. This should be viewed as a pause, not as a sign that external risks have passed.
Regarding inflationary risks, the RBI believes that high energy prices, persistent supply chain pressures, and uncertainty regarding global trade policy could slow down economic activity. The central bank also noted the risk of insufficient and uneven southwest monsoon (due to El Niño's influence), which could affect agriculture and domestic demand.
Madan Sabnavis, Chief Economist at Bank of Baroda, notes that the MPC statement demonstrates economic resilience supported by various macroeconomic indicators. He forecasts that inflation is not a problem today, but will remain elevated in the third and fourth quarters of the current year, as well as in the first quarter of the 2028 fiscal year, although it will decrease to 5.3%. This might indicate a possible rate hike closer to the end of 2026 if these inflation figures hold true.
BofA Global Research analysts believe that the RBI may still move towards a tighter policy as growth visibility improves and inflationary risks emerge. Rahul Bajoria, Head of India and ASEAN Economic Research at BofA Global Research, stated that despite the soft guidance, expected domestic data and the changing outlook of the Federal Reserve remain key points to watch, and that a rate hike in October is unlikely.
Meanwhile, G Chokkalingham, Founder and Head of Research at Equinomics Research, reported that stock markets are not overly concerned about a potential rate hike in the current situation. He noted that the RBI's stance on GDP growth and inflation instills confidence. However, the key point to monitor remains the development of the situation in the Middle East and its impact on crude oil prices. He warned that with improved monsoons and control over oil prices, the overall market sentiment is likely to remain optimistic in the coming months, but oil prices above $100 per barrel could worsen sentiment.
