Through 2025, the RBI cut interest rates hard and borrowing finally got cheaper. Most assumed at least one more cut was coming. Instead, in 2026 the central bank stopped — with two things holding that cut hostage: a weak monsoon at home, and a war abroad sending oil higher.
The cut that stopped coming
For nearly two years the repo rate sat stuck at 6.50%. Then through 2025 the RBI cut again and again, down to 5.25% — its most aggressive easing in years — and banks passed most of it on. Everyone assumed more was coming, and rate-sensitive stocks (banks, lenders, builders, carmakers) climbed on that hope. Then the cuts stopped: one hold, then two, then a third in a row. To understand why, stop watching Mumbai and start watching the sky.
We've seen this film before
The last strong El Niño, in 2015, played out almost beat for beat. The RBI had spent the year cutting; then monsoon forecasts soured, the bank grew nervous about food prices, and signalled the cuts might stop. Governor Rajan said the RBI would only know "what is possible on the policy front" as it gained confidence about the monsoon — and the Sensex shed more than 1,000 points over two days. For a whole summer the market cared more about rain gauges than balance sheets: on days the rains improved, property stocks jumped ~5% and bank stocks ~3% in a session, purely on revived cut hopes. History rhymes.
The RBI looks to the sky
On 5 June 2026 the RBI held at 5.25% for a third meeting and named the weather directly: "The outlook also remains clouded by the sub-normal southwest monsoon forecast and El Niño risks" — Governor Sanjay Malhotra. In the same meeting it raised its inflation forecast to 5.1%, above the 4% comfort level — the clearest signal that cuts are off the table.
The other half is a war. Since late February, fighting near the Strait of Hormuz — which carries a fifth of the world's oil — pushed crude from the low 70s above $100. India imports most of its oil, so petrol crossed ₹111/litre (the first real fuel hikes in four years), and dearer diesel lifts food and goods too. Crude has since eased into the low 80s as a US–Iran deal nears, but the RBI named it in the same breath as the monsoon.
How the rain reaches your EMI
The monsoon falls short → food prices climb → inflation picks up (food is ~a third of the basket) → the RBI holds rates → your loan stays dear. Fuel is a second lever pushing the headline up. And none of it happens overnight — a weak monsoon shows up in food prices over months, in the CPI later, and in RBI decisions later still.
Two camps
Praying for the cut — non-bank lenders (Bajaj Finance, Shriram, Cholamandalam — they borrow the money they lend, so costs move with every decision), real estate (DLF, Godrej Properties, Lodha — almost every home bought on a loan), and carmakers (Maruti, M&M, Tata Motors — most vehicles financed). Barely affected — cash-rich exporters (TCS, Infosys) and low-debt consumer names (HUL, Nestlé), who even earn more on cash when rates stay high. Banks sit in between.
The double hit: the carmakers and rural lenders exposed to weak rural demand in Episode 3 show up here again, exposed to expensive money. A poor monsoon can strike Maruti or Mahindra Finance twice over, from two directions, in the same year — the part most investors miss.
Your move
Ask: does this company, or its customers, depend on borrowed money? If yes, watch three things — the monthly food-inflation print (a jump well past 4% is the first warning; next release 13 July 2026), the RBI's tone each meeting (the more anxious about prices, the further the cut drifts), and the monsoon itself. A weak monsoon in 2026 isn't just a rural story — it can keep food prices high, freeze the RBI, and quietly cancel the rate cut banks, builders and carmakers were counting on. The monsoon and the interest rate have become the same story.
