RBI Expected to Keep Policies Unchanged Amid West Asia Tensions: SBI Research
Synopsis
As tensions in West Asia continue, the RBI is anticipated to maintain its current monetary stance during the upcoming MPC meeting. This cautious approach comes amid global disruptions and rising inflation pressures on the Indian economy.
Key Takeaways
RBI likely to maintain status quo in upcoming MPC meeting.
Global oil market disruptions caused by West Asia conflict.
Inflation pressures rising due to high crude oil prices.
Operation Twist may be considered to manage yields.
Government's customs duty exemption may ease imported inflation.
New Delhi, April 5 (NationPress) Amid the ongoing developments in West Asia, the Reserve Bank of India (RBI) is expected to keep its current policies unchanged during the forthcoming monetary policy committee (MPC) meeting scheduled for next week (April 6-8), according to a recent analysis from SBI Research.
This meeting marks the first policy discussion since the onset of the conflict between the US-Israel and Iran, prompting the RBI to tread carefully in its communication.
The central bank is also likely to “concurrently consider the possibility of executing Operation Twist,” which is aimed at increasing short-term yields while stabilizing long-term yields, ensuring that various reference rates stay within the set bands and are aligned with the policy rate in a measured way. This approach is expected to address the balance of payment deficit through well-designed measures, as highlighted in the report.
Since the last policy meeting, the war in West Asia has plunged the global landscape into turmoil.
The practical closure of the Strait of Hormuz and damage to regional infrastructure have caused the most significant disruption to the global oil market since 1973, per the International Energy Agency (IEA).
“India is certainly feeling the impacts of the ongoing crisis, with the rupee now trading above 93 per dollar and crude oil prices consistently above $100 per barrel, leading to a surge in imported inflation across the country. Furthermore, the forecast of a 'Super El Nino' could intensify inflationary pressures,” stated Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India.
In response to the fluctuations in the rupee during the conflict, the RBI has announced several measures aimed at curbing speculation in both onshore and offshore non-deliverable forward (NDF) markets.
However, some of these regulations may create operational difficulties for banks.
As a result, the Consumer Price Index (CPI) trajectory currently suggests inflation exceeding 4.5% for the next three quarters, although projections for FY27 remain well within the RBI's target range, according to the report.
“Nonetheless, the government’s recent move to exempt customs duties on a wide array of essential petrochemical products until June 30, 2026, could help reduce input costs and thereby have a favorable impact on imported inflation,” noted Dr. Ghosh.
“Considering the current volatility of the rupee and yields, we believe that liquidity management is essential to provide support to the rupee,” the SBI economist emphasized.
Point of View
The RBI's expected decision to maintain its current policy reflects a prudent approach amidst rising inflation and market instability. This careful navigation is crucial for India's economic stability.
NationPress
23 Jul 2026
Frequently Asked Questions
What is the expected outcome of the RBI's upcoming MPC meeting?
The RBI is likely to maintain its current monetary policy stance amid ongoing tensions in West Asia.
How is the West Asia conflict affecting India?
The conflict has led to increased crude oil prices and a weaker rupee, contributing to rising inflation.
What is Operation Twist?
Operation Twist is a monetary policy tool aimed at managing yields by increasing short-term rates while stabilizing long-term ones.
What impact does the customs duty exemption have?
The government's exemption on certain petrochemical products could help lower input costs and mitigate imported inflation.
What is the CPI trajectory suggesting?
Current CPI projections indicate inflation may exceed 4.5% for the next three quarters.
