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RBI to Hold Rates Amid West Asia Conflict, Rising Oil Prices: SBI

SBI Research predicts the Reserve Bank of India will maintain a status quo in its upcoming monetary policy committee meeting, citing the evolving conflict in West Asia and global market volatility. The report highlights significant disruption to the global oil market, pushing crude prices above $100/barrel and putting upward pressure on India's imported inflation. It notes the RBI has already taken measures to curb speculation in currency markets amid a volatile rupee. However, recent government duty exemptions on petrochemical products could provide some relief to input costs.

Key Points: RBI Likely to Hold Rates in April Policy, Says SBI Research

  • RBI likely to hold rates
  • West Asia conflict disrupts oil market
  • Rupee volatility and imported inflation
  • Suggests exploring 'Operation Twist'
  • Govt duty exemption may ease costs
2 min read

RBI likely to maintain status quo in upcoming policy meet: SBI Research

SBI Research expects RBI to maintain status quo in upcoming MPC meeting due to West Asia conflict, volatile rupee, and rising crude oil prices.

"India is not unscathed from the current crisis and feeling the mercury rising. - Dr Soumya Kanti Ghosh"

New Delhi, April 5

As the West Asia situation is still evolving, the Reserve Bank of India is likely to maintain status quo in the upcoming monetary policy committee meeting next week, a report by SBI Research said on Sunday.

As the first policy since the staring of US-Israel and Iran war, the RBI would be much careful in communicating its position.

The Central Bank needs to "concomitantly explore the probability of conducting Operation Twist" that pushes up the short-term yield while sobering the yield on long term papers ensuring various reference rates remain within the prescribed bands, aligned with policy rate in calibrated manner, while addressing balance of payment deficit through well crafted measures, the report mentioned.

Since the last policy, a war raging in West Asia has plunged the entire world into chaos.

The de facto closure of the Strait of Hormuz and damage to regional infrastructure have produced the largest disruption to the global oil market in its history since 1973, according to the International Energy Agency (IEA).

"Obviously, India is not unscathed from the current crisis and feeling the mercury rising. Rupee is already hovering above 93 per dollar and crude oil is adamant above $100/bbl resulting in jump in imported inflation across states. This along with projection of 'Super El Nino' may put upward pressure on inflation," said Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

Alarmed over the spike in rupee's gravitational pull during the current conflict, RBI has come out with several announcements, targeting curbing of speculations spread across both Onshore, as also Offshore NDF markets.

However, some of the norms may pose operational challenges for banks.

Consequently, CPI trajectory (as of now) may indicate more than 4.5 per cent inflation for the next three quarters, though the FY27 projections are well under RBI's target range, said the report.

"However, the government's recent decision for full customs duty exemption on a wide range of critical petrochemical products till June 30, 2026 may lower input costs and hence may have benign impact on imported inflation," Dr Ghosh noted.

"Given the current volatility in rupee and yield, "we believe the liquidity should be modulated to ensure rupee also gets support," the SBI economist added.

- IANS

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Reader Comments

R
Rohit P
Petrol prices are already so high! If crude stays above $100, everything from vegetables to transport will get costlier. RBI needs to act strongly to protect the common man's pocket. 🇮🇳 Hope they have a solid plan beyond just waiting and watching.
S
Soumya K
As an economics student, I find the 'Operation Twist' suggestion fascinating. Managing the yield curve while dealing with a BoP deficit is a tightrope walk. The RBI's caution is justified, but I hope the measures for banks are practical and don't stifle credit flow.
A
Aman W
Global chaos affecting our economy again. We need to become more self-reliant in energy. Jai Ho for the duty exemption move, but long-term solutions are needed. RBI holding rates steady makes sense for now to avoid adding more uncertainty.
K
Kavya N
The report is comprehensive, but respectfully, the communication from RBI can sometimes be too technical for the average person to understand. It would help if they explained the impact on loans, EMIs, and savings in simpler terms during such volatile times.
V
Vikram M
Inflation above 4.5% for three more quarters is worrying. My home budget is already stretched. The 'Super El Nino' threat on top of imported inflation is a double whammy for farmers and consumers. Strong monetary policy is needed, not just status quo.

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