Economists see RBI adopting wait-and-watch stance amid geopolitical uncertainty

Economists expect the RBI to maintain a wait-and-watch stance on monetary policy amid geopolitical uncertainty and inflation trends. Rising food inflation and global oil prices are key risks, while the central bank is likely to avoid immediate policy tightening.

New Delhi: Economists on Friday said they do not expect the Reserve Bank of India (RBI) monetary policy committee to exhibit any urgency to tighten policy as yet amid fast-evolving geopolitical situation.

RBI Governor Sanjay Malhotra said last month that Central Bank is closely monitoring the fallout from the West Asia conflict and will not make firm commitments on the future path of policy rates.

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He signalled that the central bank was in no hurry to move on rates. “We are in a wait-and-watch mode,” he said.

According to Radhika Rao, Senior Economist and Executive Director, DBS Bank, India’s April inflation is expected to rise to 3.9 per cent YoY from 3.4 per cent in the previous month, edging closer to the mid-point of the target range, versus a benign 2.1 per cent in FY26.

Food inflation is likely to have edged up towards 4.5 per cent from 3.7 per cent, reversing last year’s weak momentum, driven by selected perishables such as tomatoes and eggs, along with cereals and edible oils, and further exacerbated by untimely rains in some regions.

“Core inflation, however, is expected to remain stable and modest at 3.4 per cent, helped by a pullback in precious metal prices. Signs of an updrift should also be captured in transport inflation due to ATF prices and services in the restaurant and hospitality sector (commercial cooking gas price adjustments),” said Rao.

The broader impact of high global oil prices is yet to percolate through retail inflation, as pump fuel prices remain unchanged. Markets will also monitor El Nino developments and their impact on monsoon strength.

Meanwhile, the jump in imported costs on account of elevated commodity prices and a weak rupee is likely to be more apparent in the WPI gauge, which had already outpaced retail inflation in March and is expected to extend the uptrend in April as well, said the economist.

In its April meeting, the RBI kept repo rate unchanged at 5.25 per cent with a neutral stance. Assocham had appreciated the “calibrated step aimed at strengthening stability in the macroeconomic environment”, adding that it helps sustain growth momentum and ensure price stability.

Madan Sabnavis, Chief Economist, Bank of Baroda, indicated dimmed likelihood of any further rate cuts as the RBI has flagged El Nino as a risk to inflation, too, and projected a GDP growth at 6.9 per cent and inflation at 4.6 per cent.