RBI likely to keep policy rates unchanged in first policy since West Asia war: SBI

The Reserve Bank of India (RBI) is expected to keep policy rates unchanged in its upcoming Monetary Policy Committee (MPC) meeting scheduled to be held from April 6 to 8. The development comes amid an increase in global uncertainty triggered by the ongoing West Asia war, according to a report by SBI Research.

"As the situation is still evolving, we expect RBI to maintain the status quo in the upcoming policy," the report said. It also highlighted that this will be the first policy meeting since the tensions begin the Gulf region.

The report added that the war has turned the entire world into chaos due to disruptions in global energy markets, which has emerged as a major concern. It noted that the de facto blockage of the Strait of Hormuz has severely disrupted the global oil market in its history since 1973.

India is not immune to economic uncertainty

A recent report also warned that India is not immune to the uncertainty of global economic developments. "Rupee is already hovering above 93 per dollar and crude oil is adamant above $100/bbl, resulting in a jump in imported inflation," it said, adding that it could worsen further by a possible Super El Niño, impacting inflation dynamics.

Domestically, SBI Research highlighted mounting inflationary pressures, noting that imported inflation has already reached 5.4 per cent and could rise further. It also projected that CPI inflation may stay above 4.5 per cent over the next three quarters. Amid this uncertain environment, the Reserve Bank of India is expected to adopt a cautious tone in its communication, especially as this will be its first policy response since the onset of the war.

The report further pointed to external challenges, including strain on the rupee and capital outflows. It noted that FY26 recorded the highest foreign institutional investor (FII) outflows since 1991 at $16.6 billion, while the balance of payments is likely to remain in deficit in FY27.

SBI also suggested that, more than policy rates, the central bank may focus on liquidity and market functioning. Further, recent regulatory developments 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.