‘Low possibility of repo rate change in RBI meeting’:Benchmark policy rate currently stands at 5.25%

The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) meeting is scheduled to be held from April 6-8. The market was hoping that there might be some relief in interest rates this time, but the rising tensions in West Asia have changed the equation. According to the latest report by SBI Research, considering the global uncertainty and surge in crude oil prices, RBI will not make any changes to the repo rate for now. Earlier in the February meeting as well, there was no change in the interest rate. Currently, the interest rate stands at 5.25%. Global turmoil, impact on supply chain The SBI Research report states that the escalating conflict between Israel and Iran has put the entire world in crisis. A situation like the closure of the Strait of Hormuz has created the biggest disruption in the global oil market since 1973. This is the first policy review after the start of the war, so the RBI will take very cautious steps. Rupee crosses 95 against dollar, ‘Imported Inflation’ will increase India is not untouched by this global crisis. Crude oil prices remain above $100 per barrel, which is increasing ‘Imported Inflation’ in India. According to the report, the rupee has crossed the level of 95 against the dollar. Along with this, the threat of ‘Super El Nio’ also persists, which could further worsen the inflation situation in the coming time. Inflation may remain above 4.5% for the next 3 quarters Challenges on the domestic front are no less. The report warns that imported inflation has already reached 5.4% and is likely to rise further. It is estimated that Consumer Price Index (CPI) based inflation may remain above 4.5% for the next three quarters. In such an environment, cutting interest rates could be risky for the RBI. Focus will remain on liquidity management, discussion of ‘Operation Twist’ The report suggests that instead of focusing only on interest rates right now, the RBI may work on improving market liquidity and microstructure. To manage government bond yields, the central bank may take steps like ‘Operation Twist’ (buying long-term bonds and selling short-term bonds). Additionally, the recent strict measures taken to curb speculation in the currency market may also create some operational challenges for banks.