Consumer Price Index (CPI) inflation stood at 3.48 per cent in April 2026 comfortably within the RBI’s target band of 4 per cent ± 2 per cent. However, wholesale price inflation (WPI) surged to 8.3 per cent, driven largely by a sharp rise in fuel and power costs linked to geopolitical tensions in Middle East.
Reflecting these risks, the RBI has revised its inflation forecast for FY27 upward by 50 basis points to 5.1 per cent with crude basket now priced in at USD 95 a barrel for the year.
While immediate forex inflows are not anticipated from the above measures, they are likely to arrest the recent capital outflows and foster improved market sentiment, as they represent more investor-friendly initiatives rather than capital control policies. In the long term as global uncertainties subside, these actions should translate into increased forex flows. Markets will also await the announcement of the Bloomberg bond index inclusion due this month.
Considering current inflation expectations, it is anticipated that the MPC will evaluate potential rate hikes beginning in October. However, due to ongoing global uncertainties and fluctuating developments in the Middle East, risks remain elevated.
We expect markets to remain nimble with major action in the shorter end of the curve. The current spreads may continue to remain attractive both in the money markets and the 2-3 year corporate bond segments. On the longer end we prefer the ultra-longer end of the curve given the absolute spreads. Overall we expect the 10 year to trade in the 6.85 per cent-7.25 per cent range in the medium term as the focus shifts on Fiscal front. (Source: RBI) SEBI Reg: LIC Mutual Fund | Reg No: MF/012/94/5
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