New Delhi, April 3 – Economists on Friday said they do not expect any changes in the repo rate or policy stance this time, given the geopolitical tensions, as the Reserve Bank of India (RBI) prepares for its monetary policy committee (MPC) meeting next week.
According to them, the tone will be cautious, and the eagerly awaited aspect will be the RBI's forecast for GDP and inflation under the prevailing uncertainty.
"We do not anticipate any measures for either liquidity or currency management, as the RBI will take action as required, as we have seen recently," said Madan Sabnavis, Chief Economist, Bank of Baroda (BoB).
The three-day policy meeting is scheduled from April 6 to April 8 – the first since the ongoing energy shock triggered by the West Asia conflict pushed Brent crude to average around $100 per barrel in March.
The bank stated that if inflation breaches the upper tolerance band of 6 per cent, there could be a rate hike towards the end of the year.
"The impact of the war on growth and inflation will become clearer in the next 3-4 months. The RBI is likely to then make a decision on the direction of its interest rate trajectory," according to BoB.
According to HSBC Global Investment Research, the MPC meeting will primarily focus on communication to address the anxiety surrounding the oil price shock.
"We expect the RBI to outline scenarios, sensitivities, and the broad tenets of their reaction function. Despite the oil price shock, we do not expect rate hikes in the foreseeable future, as we believe the RBI will focus on one-year ahead inflation, which may look softer than inflation in the immediate months," said HSBC economists.
According to experts, the economic landscape has reached the end of the rate cut cycle, and the RBI will now remain on a prolonged pause.
The RBI moved on March 27 to sharply tighten onshore banks' net open foreign exchange positions, prompting speculation about whether an interest rate defense of the rupee would follow. HSBC pushed back on this view, saying the bar for rate hikes remains high.
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