The Reserve Bank of India (RBI) is likely to keep key policy rates unchanged in its upcoming Monetary Policy Committee (MPC) 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 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 … 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, 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.