As the situation in West Asia continues to develop, the Reserve Bank of India (RBI) is anticipated to keep its policies unchanged in the upcoming monetary policy committee (MPC) meeting scheduled for April 6-8. This meeting marks the first policy decision since the onset of the US-Israel and Iran conflict, prompting the RBI to be cautious in its communications.
The SBI Research report suggests that the RBI may need to consider implementing an “Operation Twist” to manage short-term and long-term yields effectively, ensuring that various reference rates align with the policy rate in a controlled manner. The recent turmoil in West Asia, triggered by ongoing conflicts, has significantly disrupted the global oil market, leading to widespread chaos.
The report highlights the impact of the West Asia crisis on India, with the rupee trading above 93 per dollar and crude oil prices surpassing $100 per barrel, resulting in increased imported inflation nationwide. Dr. Soumya Kanti Ghosh, the Group Chief Economic Adviser at State Bank of India, expressed concerns about the potential inflationary pressures arising from these developments, exacerbated by the projected ‘Super El Nino’ effect.
Amidst the escalating tensions and economic challenges, the RBI has introduced measures to address speculation in both domestic and offshore markets. While these steps aim to stabilize the rupee, they may pose operational difficulties for banks. The current Consumer Price Index (CPI) trajectory indicates a likelihood of inflation exceeding 4.5% over the next three quarters, although the fiscal year 2027 projections remain within the RBI’s target range.
Dr. Ghosh also highlighted the government’s decision to grant full customs duty exemption on key petrochemical products until June 30, 2026, which could help reduce input costs and mitigate imported inflation. Given the prevailing currency and yield volatility, the SBI economist emphasized the importance of adjusting liquidity to provide support for the rupee.
