New Delhi, April 5 – As the situation in the West Asia continues to evolve, the Reserve Bank of India (RBI) is likely to maintain the status quo at the upcoming monetary policy committee (MPC) meeting next week (April 6-8), according to a report by SBI Research, released on Sunday.
As the first policy since the start of the US-Israel and Iran war, the RBI will be particularly cautious in communicating its position.
The central bank needs to "simultaneously explore the possibility of conducting Operation Twist," which would increase the yield on short-term instruments while keeping the yield on long-term instruments stable, ensuring that various reference rates remain within the prescribed bands, aligned with the policy rate in a calibrated manner, while addressing the balance of payments deficit through well-crafted measures, the report stated.
Since the last policy, the ongoing war in the West Asia has plunged the entire world into chaos.
The de facto closure of the Strait of Hormuz and damage to regional infrastructure have caused the largest disruption to the global oil market since 1973, according to the International Energy Agency (IEA).
“Obviously, India is not immune to the current crisis and is feeling the pressure. The rupee is already hovering above $93, and crude oil prices are above $100 per barrel, leading to a rise in imported inflation across states. This, along with the projected 'Super El Nino,' may put upward pressure on inflation,” said Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India.
Alarmed by the sharp rise in the rupee's value during the current conflict, the RBI has issued several announcements aimed at curbing speculation in both onshore and offshore NDF markets.
However, some of these measures may pose operational challenges for banks.
Consequently, the CPI trajectory (as of now) may indicate more than 4.5 per cent inflation for the next three quarters, even though the FY27 projections are well within the RBI's target range, the report stated.
“However, the government's recent decision to exempt customs duties on a wide range of critical petrochemical products until June 30, 2026, may lower input costs and, therefore, have a positive impact on imported inflation,” Dr. Ghosh noted.
“Given the current volatility in the rupee and interest rates, we believe that liquidity should be managed to support the rupee,” the SBI economist added.
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