Societe Generale’s Kunal Kundu expects the RBI Monetary Policy Committee to keep the repo rate at 5.25% and retain a neutral stance. The focus is on stability after recent oil and foreign exchange shocks.
Inflation and growth conditions are described as favourable compared with earlier war-related disruption such as the Russia–Ukraine war. February 2026 CPI inflation is cited at 3.2% year on year.
Real Policy Rate Back In Positive Territory
India’s real policy rate is stated at 2.04%, compared with -2.07% in 2022. The change is linked to lower inflation readings than in 2022.
The US Federal Reserve is described as on hold at 3.50–3.75%, with no rate cuts expected this year. The Fed is also noted to have raised rates 11 times starting in March 2022, which is presented as a tougher backdrop for emerging-market foreign exchange than the current setting.
The article notes it was created using an artificial intelligence tool and reviewed by an editor.
We expect the Reserve Bank of India will keep the repo rate at 5.25% with a neutral stance, prioritizing stability for the markets. This follows the recent oil and currency shocks that caused a spike in volatility last month. Traders should anticipate a period of lower volatility in Indian interest rate products.
Markets Shift Toward Lower Volatility Strategies
The inflation picture is quite favourable, with the latest data for March 2026 showing CPI at a manageable 3.4%. This gives India a real policy rate of over 2%, a much healthier position than the negative real rates we saw back in 2022. This makes strategies like carry trades, which benefit from this interest rate differential, more appealing.
With the U.S. Federal Reserve also holding its rate steady, a major source of pressure on the rupee has been removed. We are not seeing the kind of rapid Fed hikes that hit emerging market currencies hard in 2022. This should help the USD/INR pair find stability around the 86.00 level after its recent sharp move.
Given this outlook, selling volatility through options on both currency and interest rate futures seems like a sound strategy. Implied volatility in the India VIX index, which recently touched 18, has already begun to fall back towards the 14-15 range as the market digests the central bank’s calming stance.
This policy makes sense when we look at India’s strong GDP growth, which was 6.8% in the final quarter of 2025. Unlike the rate hike cycle we saw through much of 2025 to tame inflation, the current environment is about maintaining balance. For now, the central bank’s actions suggest that major swings in either direction are unlikely.
