New Delhi, April 5 As the West Asia situation is still evolving, the Reserve Bank of India (RBI) is likely to maintain status quo in the upcoming monetary policy committee (MPC) meeting next week (April 6-8), 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.
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