RBI Likely To Hold Rates Amid Inflation Risks From Global Turmoil

Reserve Bank of India is expected to keep the benchmark repo rate unchanged at 5.25% in its April monetary policy review, as rising inflation risks linked to the ongoing Middle East crisis complicate the outlook, according to economists.

A poll indicates that the central bank is likely to adopt a cautious approach amid heightened uncertainty driven by volatile crude oil prices, currency pressures, and global instability. The Indian rupee has weakened sharply, hovering above 93 per US dollar, while crude prices have surged past $100 per barrel, intensifying imported inflation risks.

Aditi Nayar said the RBI is expected to remain on pause and closely track inflation trends before taking further action, given the uncertainty around energy prices and geopolitical developments. Echoing similar concerns, Soumya Kanti Ghosh noted that India is already feeling the impact of rising imported inflation, exacerbated by currency depreciation and elevated crude prices, with additional pressure likely from a projected “super El Niño.”

Economists believe the central bank will prioritise inflation management over growth support in the near term. Dipti Deshpande said that if inflation remains close to the RBI’s target, policymakers may choose to look through the current supply shock and maintain status quo on rates.

The RBI has already reduced the repo rate by 125 basis points since February last year but has held rates steady in its last three policy reviews. The six-member Monetary Policy Committee is set to begin its April meeting on Monday, with the outcome due on Wednesday.

While retail inflation has recently moderated toward the RBI’s medium-term target of 4%, economists warn that rising crude prices could trigger second-round effects on fuel, transport, and core inflation. Estimates suggest that every $10 per barrel increase in crude oil could push inflation higher by up to 0.60 percentage points. Since late February, crude prices have climbed from around $60 to over $100 per barrel, while the rupee has depreciated by more than 4%, amplifying price pressures.

Madan Sabnavis said no immediate change in rates or policy stance is expected, though markets will closely watch the RBI’s updated projections for growth and inflation. Similarly, Sakshi Gupta cautioned against policy moves based on short-term volatility, suggesting the central bank would wait for clearer signals on inflation trends.

Analysts expect the RBI to potentially revise its inflation and growth forecasts in light of evolving global risks, with a likelihood of upward adjustments to inflation if crude prices remain elevated. Despite relatively stable domestic growth conditions, global uncertainties could weigh on exports and investment, necessitating continued policy flexibility.

The central bank is also expected to retain its neutral stance, balancing inflation risks with growth considerations. Liquidity conditions, transmission of earlier rate cuts, currency movements, capital flows, and financial market stability are likely to remain key factors guiding policy decisions in the near term.