The RBI is expected to keep interest rates unchanged in its upcoming policy announcement, a Bank of Baroda report says. The decision is linked to assessing the economic impact of the West Asia crisis and rising inflation concerns.
The Reserve Bank of India (RBI) is likely to maintain the status quo on interest rates in its monetary policy announcement on Friday as the impact of the ongoing crisis in West Asia on economic growth remains difficult to assess, according to a report by Bank of Baroda.
Bank of Baroda Report's Projections
The report said the central bank is expected to continue with a data-dependent approach while balancing growth concerns, inflation risks and global uncertainties. "We may expect status quo on rates as the impact on growth due to the crisis is still difficult to ascertain, and on the inflation front, an increasing trend is imminent," the report said.
Bank of Baroda also expects the RBI to retain its neutral policy stance, saying it provides the central bank with the flexibility to respond to incoming economic data.
Key Developments Since Last Policy Meeting
According to the report, several developments have taken place since the RBI's previous monetary policy meeting. It noted that there have been reports of a 60-day extension of the ceasefire in West Asia, although uncertainty surrounding the situation remains high.
While international crude oil prices have shown some correction following the development, the report cautioned that volatility in crude prices cannot be ruled out unless a formal peace agreement is reached. The report highlighted that one of the most significant developments since the last policy meeting has been the increase in petrol and diesel prices.
Impact on Inflation Projections
According to Bank of Baroda, the RBI's inflation projections are likely to reflect the impact of these higher fuel prices. "We expect the RBI's CPI projection for FY27 to be revised upward," the report stated.
Volatility in Indian Rupee
The report also pointed to volatility in the Indian rupee as an important development in recent months. However, it noted that exchange rate movements do not directly fall under the scope of monetary policy decisions.
Policy Outlook and Tone
From a growth perspective, the report believes maintaining rates at current levels remains the preferred option at this stage. It noted that headline consumer price inflation, which remains the RBI's key policy variable, has not yet fully reflected the impact of higher costs being passed on across the economy.
As a result, the report expects the upcoming policy statement to be relatively more hawkish in tone, particularly through an upward revision in inflation forecasts and a stronger emphasis on near-term inflation risks.
The report concluded that, given the evolving geopolitical situation, inflation concerns and uncertainty around growth, the RBI is likely to wait for more data before making any major changes to interest rates.
Reserve Bank of India (RBI) Governor Sanjay Malhotra is set to announce the outcome of the Monetary Policy Committee (MPC) three-day meeting on Friday, June 5. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)