In a notable development, The Reserve Bank is reported to likely keep the benchmark policy repo rate unchanged at 5.25 per cent in the April monetary policy review meeting, as the West Asia crisis continues to nurture inflationary fears.
The continuing geopolitical tensions in West Asia have resulted in increased volatility in commodity prices and sharp currency movement that have seen the rupee hit record lows. As per economists interviewed by PTI, these developments have unprecedentedly complicated the policy outlook, and its projections on matters like growth and inflation.
What do economists say?
“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,” Aditi Nayar, Chief Economist at ICRA told PTI.
SBI’s chief economist Soumya Kanti Ghosh echoed Nayar’s sentiment and maintained that 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 told PTI , adding that the projected “super El Nino” will also put pressure on inflation.
What is “Super El Nino” ?
Super El Nino is a weather based phenomena that occurs when sea surface temperatures in the central-equatorial Pacific rise significantly above the average, a process that often results in the weakening of Indian monsoons.
For India, this isn’t just a weather report; it’s an economic warning. Given the reliance of Indian farmers on rain, poor monsoon often leads to lower crop yields. When the rains fail, food prices skyrocket, making it a challenge for the RBI to lower interest rates without risking inflation.
RBI measures so far
While the RBI has cut the repo rate by 1.25% since early 2025 as the cool down in inflation offered it the space to work towards further boosting growth, it has hit a plateau since then. As 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 interviewed by PTI noted that while retail inflation recently moved closer to the RBI’s medium-term target of 4 per cent, the recent dramatic flare up in global crude oil prices has raised concerns about potential second-round effects on domestic prices, particularly fuel, transportation, and core inflation components.
What are second round effects?
Second-round effects refers to the ripple effects of a price shock on the border economy. When a sudden event like the current West Asia crisis causes prices to spike for one specific thing (like oil or tomatoes), that’s the first-round effect. It’s direct and immediate.
Second-round effects happen when that initial spike starts “leaking” into the rest of the economy. An example of this was recently seen by people in India, where hotels and restaurants had either started more for menu items that used LPG.
In modern economies, any development is rarely isolated. A rise in oil price also reads to rise in transportation cost, which can often lead to rise of costs of business in sectors like construction and transportation.
Reports by PTI suggest that 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 a long time, have hardened to over USD 100 since the start of the conflict in late February.
The Indian Rupee is also feeling the heat, hovering at record lows above 93 per dollar, further making imports expensive. Given these developments, the consensus among some of India’s top economists is clear: Stability over stimulus.
What’s the consensus?
Given the prevailing situation, Indian economists suggest that the focus of RBI’s policy is now likely to turn towards managing inflation rather than supporting growth.
“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 told PTI.
Furthermore, media reports suggest that economists see a widening possibility of the central bank revising its inflation forecast upward for the current financial year if crude oil prices remain elevated for a prolonged period.
Diverging voices
Diverging from the narrative maintained by the larger class of economists interviewed by PTI, HDFC Bank’s principal economist, Sakshi Gupta maintained that a rate decision based on short-term developments may not be prudent for the economy at this stage, especially when global commodity prices remain volatile.
“The central bank would prefer to wait for clearer signals on the inflation trajectory,” Gupta told PTI. 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.
(With Inputs from PTI.)