Societe Generale’s Kunal Kundu said the Reserve Bank of India’s Monetary Policy Committee is expected to hold the repo rate at 5.25% and keep a neutral stance. The focus is on stability after recent oil and foreign exchange shocks.
He referred to current inflation and growth conditions as favourable compared with the period around the Russia–Ukraine war. February 2026 CPI inflation was cited at 3.2% year on year.
Real Policy Rate Improves
India’s real policy rate was put at 2.04%, compared with -2.07% in 2022. The comparison was linked to the higher inflation seen in 2022.
Kundu said the US Federal Reserve is on hold at 3.50–3.75% and is not expected to cut rates this year. He also noted that the Fed raised rates 11 times starting in March 2022.
Given the Reserve Bank of India is expected to keep the repo rate steady at 5.25%, we see a period of stability ahead. This suggests that implied volatility, which recently saw a brief spike as the India VIX touched 17 during March’s oil price jitters, should continue to decline. Traders should consider strategies that benefit from range-bound markets, such as selling options on Nifty or Bank Nifty futures.
The Indian Rupee should remain stable against the US Dollar, supported by a high real policy rate of over 2%. Unlike the environment in 2022, when rapid Federal Reserve hikes pressured emerging market currencies, the Fed is now on hold, which provides a supportive backdrop for the Rupee. We believe selling short-dated USD/INR strangles, perhaps with strikes around 84.50 and 86.00, could be a viable strategy to collect premium as the currency consolidates.
OIS And Short Term Rates
With inflation relatively low—the February 2026 reading was 3.2% and preliminary March data points to a similar 3.4%—there is little pressure on the RBI to act. This predictability in short-term rates makes overnight index swaps (OIS) an interesting area. Traders could look to receive the fixed rate on short-tenor OIS contracts, betting that the market has overpriced the small chance of a future rate hike.
We must remain mindful of the recent oil and FX shocks that are keeping the RBI cautious. The spike in Brent crude to over $95 per barrel in February 2026, though it has since eased to around $89, serves as a reminder that external factors can change the outlook quickly. Therefore, any short-volatility positions should be managed with clear risk parameters and stop-losses.
