The Indian central bank reduced rates by a cumulative 125 basis points in 2025 but paused at its February meeting. Malhotra said in December that India’s economy was in a “Goldilocks” phase – combining strong growth with low inflation – giving the central bank room to keep policy loose for an extended period.
However, little did investors then know what was coming for them in 2026. War broke out in the oil-rich Middle East between Iran and US, sparking a skyrocketing rally in oil prices, a massive selloff on Dalal Street and raising questions over the possible impact on India’s macroeconomics.
RBI MPC has kept the repo rate unchanged at 5.25% and maintained a neutral stance, but analysts expect the central bank to cut rates cumulatively by 50 basis points in 2026 amid inflation worries.
Goldman expects a 50 basis point hike in the policy repo rate to counter pressures from a depreciating Indian currency. This came as the rupee last week dropped to a record low after breaching the key 95-mark against the US dollar for the first time ever, before recovering some losses following some measures taken by RBI.
Goldman Sachs forecasts the Indian economy to grow by 5.9% in 2026, as compared to its pre-Iran war forecast of 7%. It now sees inflation in India rising to 4.6% in 2026 from their earlier expectation of 3.9%.
Reality of realty
The status quo from the RBI’s Monetary Policy Committee (MPC), coupled with projections of a 50 basis point rate hike in 2026, reflects a cautious RBI navigating inflation risks without derailing growth, said Manoranjan Sharma, Chief Economist at Infomeric Ratings. He added that is a less comfort signal for rate-sensitive sectors. “Real estate continues to ride on steady demand and stable borrowing costs. Yet the striking reality of realty reveals conditional resilience,” he said
A prolonged pause risks inflating prices further, stretching affordability in key urban markets. When rates eventually rise, the burden will fall unevenly—mid-income buyers are likely to retreat first, exposing developers to slower sales and tighter cash flows. The sector’s current strength, therefore, may be masking underlying fragility,” the analyst added.
Real estate stocks like Godrej Properties and DLF have declined up to 23% so far in 2026, while HDFC Bank shares fell 22%. Bajaj Finance and Bajaj Finserv shares meanwhile fell up to 17%.
Banks’ weakening credit demand to coincide with rate hike cycle?
Banks, meanwhile, may see near-term gains through better net interest margins as lending rates adjust faster than deposit costs, according to the analyst, who however noted that this advantage is already narrowing. “Rising deposit rates amidst jockeying for funds, and a future rate hike cycle could coincide with weakening credit demand. More critically, higher borrowing costs tend to surface later as stress in retail and MSME loans, raising asset quality concerns,” he said.
NBFCs remain the most exposed, Manoranjan Sharma said, explaining that they face immediate cost pressures when rates rise with greater dependence on market borrowings, but limited flexibility in onward transmission. “Tightening liquidity could disproportionately impact lower-rated players, reviving familiar sectoral vulnerabilities. The larger concern lies in the transmission lag. Financial markets tend to anticipate policy moves, thus conditions could tighten before the RBI action. A pause in the growth-inflation trade-off risks breeding complacency across sectors that remain structurally sensitive to rates. In effect, the RBI is buying time but not without increasing the eventual cost of adjustment,” he added.
A rate cut pause in April will not be a surprise and has already been factored in, said Dnyanada Vaidya, Research Analyst of BFSI, Axis Securities. However, global uncertainty, resultant rupee depreciation, and the risk of rising inflation could prompt the RBI to reverse the interest rate cycle, the analyst further said, adding that banks are struggling to maintain NIMs with CoD remaining sticky as they haven’t passed on the benefits of the earlier rate cuts.
Vaidya from Axis Securities noted that NBFCs could face challenges with rising CoF putting pressure on spreads/margins. “In such an event, we would stay selective and favour larger private banks with strong CASA/Deposit franchises,” the analyst said.
Today’s MPC meeting outcome is the first such address after the outbreak of the war.
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