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RBI to Hold Rates Steady Amid West Asia Conflict, Inflation Worries: SBI

The Reserve Bank of India is widely expected to keep policy rates unchanged in its upcoming April meeting, according to an SBI Research report. This caution stems from the global economic chaos triggered by the West Asia conflict, which has caused historic disruptions in oil markets and pushed crude above $100 a barrel. Domestically, the rupee's weakness and soaring imported inflation, already at 5.4%, threaten to keep Consumer Price Index inflation elevated above 4.5% for the next three quarters. Consequently, the RBI's focus is likely to shift to managing liquidity, market functioning, and careful communication amidst these external shocks.

Key Points: RBI Rate Decision: Status Quo Expected Post West Asia Conflict

  • RBI expected to hold rates
  • Global oil market faces historic disruption
  • Rupee pressure and imported inflation rise
  • CPI may stay above 4.5% for quarters
  • Focus on liquidity and market microstructure
2 min read

RBI expected to hold rates steady in first policy since West Asia conflict: SBI Report

SBI Research expects RBI to hold rates in April policy amid global oil market chaos, rupee pressure, and rising imported inflation from conflict.

"Rupee is already hovering above 93 per dollar and crude oil is adamant above $100/bbl - SBI Research Report"

New Delhi, April 5

The Reserve Bank of India is likely to keep key policy rates unchanged in its upcoming Monetary Policy Committee meeting scheduled for April 6-8, amid heightened global uncertainty triggered by the ongoing West Asia conflict, according to a report by SBI Research.

"As the situation is still evolving, we expect RBI to maintain status quo in the upcoming policy," the report said, highlighting that this will be the first policy review since the outbreak of the conflict.

The report noted that the war has "plunged the entire world into chaos," with disruptions in global energy markets emerging as a key concern. It pointed out that the "de facto closure of the Strait of Hormuz... has produced the largest disruption to the global oil market in its history since 1973."

India, the report cautioned, is not insulated from these developments. "Rupee is already hovering above 93 per dollar and crude oil is adamant above $100/bbl resulting in jump in imported inflation," it said, adding that this could be exacerbated by a possible Super El Nino, impacting inflation dynamics.

On the domestic front, SBI Research underlined rising inflationary pressures. "Imported inflation... is already at 5.4%... and is expected to increase considerably further," the report stated, warning that CPI inflation could "indicate more than 4.5% inflation for the next 3 quarters."

Given the volatile backdrop, the RBI is expected to tread cautiously in its communication. "As the first policy since the starting of war, RBI would be much careful in communicating its position," the report added.

The report also flagged external sector concerns, including pressure on the rupee and capital outflows. It noted that FY26 saw the "highest FII outflows at $16.6 billion since 1991," while the balance of payments (BoP) is projected to remain in deficit in FY27.

On policy measures, SBI suggested that beyond rate action, the central bank may focus on liquidity and market functioning. "What is currently required is focus on correcting market microstructure," it said, adding that the RBI could explore "Operation Twist" to manage yields.

Further, recent regulatory steps to stabilise the rupee may pose challenges for lenders. "Some of the norms may pose operational challenges for Banks," the report observed, particularly in relation to curbs on speculative positions in currency markets.

SBI Research concludes that while growth considerations remain relevant, the current environment of geopolitical tensions, currency volatility, and inflation risks justifies a pause in policy rates.

- ANI

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Reader Comments

R
Rohit P
FII outflows of $16.6 billion is a huge red flag 🚩. Global investors are nervous. RBI holding rates steady sends a signal that we are a stable economy amidst global chaos. Good for long-term confidence.
A
Aman W
As a small business owner, I was hoping for some relief on loan EMIs, but I understand. If inflation goes above 4.5% for three quarters, our input costs will shoot up anyway. Better to control prices first.
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Sarah B
The report mentions "Operation Twist" – that's a smart tool to manage long-term yields without changing the repo rate. Hope the RBI uses all available instruments to support growth while fighting inflation.
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Karthik V
The Strait of Hormuz situation is scary for our energy security. We import so much oil. RBI's caution is justified, but the government also needs a stronger plan for renewable energy to reduce this dependency. 🇮🇳
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Nikhil C
While a pause is pragmatic, I hope the communication is clear. The common man needs to understand *why* rates aren't being cut when growth is a concern. Transparency from RBI will prevent market rumors.
M
Meera T
It's a tough balancing act. On one side, there's war and global oil shocks. On

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