MUMBAI: The Reserve Bank is likely to keep the benchmark policy repo rate unchanged at 5.25 per cent in the April monetary policy review meeting, as the West Asia crisis is likely to push up inflation, according to economists.
The continuing geopolitical tensions in West Asia, volatility in commodity prices and sharp currency movement that have seen the rupee hit record lows have complicated the policy outlook, and its projections on growth, inflation and also the stance of policy will be keenly watched, the poll of over a dozen economists said.
"Given the uncertainty around crude oil prices and geopolitical developments, the RBI is likely to remain on pause in the April policy and closely monitor incoming inflation data before taking any further action," said Aditi Nayar, Chief Economist at ICRA.
SBI's chief economist Soumya Kanti Ghosh said while announcing the pause, the RBI will be careful in communicating its decision.
"India is not unscathed from the current crisis and is feeling the mercury rising. Rupee is already hovering above 93 per dollar, and crude oil is adamant above USD 100 per barrel, resulting in a jump in imported inflation across states," Ghosh said, adding that the projected "super El Nino" will also put pressure on inflation.
Dipti Deshpande, principal economist, Crisil, said under the base case expectation that inflation stays close to the MPC's target, the monetary policy may look through this supply shock and will keep rates on hold.
The central bank has so far reduced the repo rate by 1.25 per cent since last February, as the cool down in inflation offered it the space to work towards further boosting growth. However, the central bank kept the rate unchanged in the August, October and February 2026 monetary policies.
The six-member monetary policy committee is scheduled to start its April policy review meeting on Monday, and the final vote on one of the most challenging policy reviews will happen on Wednesday.
Economists noted that while retail inflation has moved closer to the RBI's medium-term target of 4 per cent, the recent surge in global crude oil prices has raised concerns about potential second-round effects on domestic prices, particularly fuel, transportation, and core inflation components.
As per estimates, every USD 10 increase in crude prices per barrel stokes inflation by up to 0.60 per cent. Crude prices, which were in the USD 60 per barrel vicinity for long, have hardened to over USD 100 since the start of the conflict in late February. Additionally, the rupee has depreciated by over 4 per cent since the war, which has consequences for pushing up import inflation.
"We do not expect any change in repo rate or stance this time. The tone will be cautious, and what will be eagerly awaited is the RBI's forecast of GDP and inflation under the prevailing uncertainty," state-run lender Bank of Baroda's chief economist Madan Sabnavis said.
HDFC Bank's principal economist, Sakshi Gupta, however, advised that a rate decision based on short-term developments may not be prudent at this stage, especially when global commodity prices remain volatile.
"The central bank would prefer to wait for clearer signals on the inflation trajectory," said Gupta.
Several economists indicated that the RBI may reassess its inflation and growth projections in the upcoming policy to reflect evolving global risks.
There is a possibility that the central bank could revise its inflation forecast upward for the current financial year if crude oil prices remain elevated for a prolonged period.
Given the prevailing situation, the focus of the policy will turn towards managing inflation rather than supporting growth, the economists said.
"While domestic growth conditions remain supportive, the persistence of global uncertainties could weigh on exports and investment activity, requiring the RBI to maintain policy flexibility," said a treasury official at a private sector bank.
Economists expect the central bank to retain its current policy stance of neutral in the upcoming review, reflecting a preference to maintain flexibility amid evolving inflation dynamics and global uncertainties.
The tone of the policy is expected to remain cautious and watchful, with policymakers likely to highlight upside risks to inflation from volatile crude oil prices and geopolitical tensions.
Economists further said liquidity conditions, transmission of past rate changes, and financial market stability will remain key considerations for policymakers.
The RBI is also expected to closely monitor currency movements, capital flows, and bond market dynamics while calibrating its policy stance.