Economists expect RBI to hold rates amid geopolitical uncertainty, inflation risks

Economists believe the Reserve Bank of India (RBI) is unlikely to rush into changing interest rates as policymakers continue to assess the impact of geopolitical tensions and inflationary pressures on the domestic economy.

The view comes after RBI governor Sanjay Malhotra recently indicated that the central bank was adopting a cautious approach amid the evolving situation in West Asia.

Speaking last month, Malhotra said the RBI was closely monitoring developments linked to the regional conflict and refrained from offering firm guidance on the future trajectory of monetary policy.

“We are in a wait-and-watch mode,” he said, signalling that the Monetary Policy Committee (MPC) was in no hurry to alter rates.

According to Radhika Rao, Senior Economist and Executive Director at DBS Bank, India’s retail inflation is expected to rise to 3.9 per cent year-on-year in April from 3.4 per cent in March, moving closer to the midpoint of the RBI’s target range.

Rao said food inflation was likely to have increased to around 4.5 per cent from 3.7 per cent previously, driven by higher prices of perishables such as tomatoes and eggs, along with cereals and edible oils. Untimely rainfall in some regions is also believed to have added pressure to food prices.

At the same time, she noted that core inflation was expected to remain relatively contained at 3.4 per cent, supported partly by easing precious metal prices.

However, some upward pressure is anticipated in transport and services inflation due to higher aviation turbine fuel prices and increased costs in the hospitality and restaurant sectors following adjustments in commercial cooking gas prices.

Economists said the full effect of rising global crude oil prices had not yet filtered through to consumer inflation because domestic fuel prices at petrol pumps had remained unchanged.

Markets are also closely tracking the potential impact of El Niño conditions on the upcoming monsoon season, which could affect agricultural output and food inflation.

Rao added that rising import costs caused by elevated commodity prices and a weaker rupee were likely to be reflected more sharply in wholesale inflation. India’s Wholesale Price Index (WPI) had already risen faster than retail inflation in March and was expected to continue climbing in April.

At its policy meeting in April, the RBI left the repo rate unchanged at 5.25 per cent while maintaining a neutral stance on policy.

Industry body Associated Chambers of Commerce and Industry of India welcomed the decision, describing it as a calibrated move designed to preserve macroeconomic stability while supporting growth and containing inflation.

Meanwhile, Madan Sabnavis, chief economist at Bank of Baroda, said the likelihood of further rate cuts appeared limited after the RBI highlighted El Niño as a potential inflation risk.

The central bank has projected India’s GDP growth at 6.9 per cent and inflation at 4.6 per cent for the current financial year.

With IANS inputs