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- SBI Research: Global Uncertainty, Crude Oil Impact RBI Repo Rate | 5.25%
New Delhi1 hour ago
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The Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) is scheduled to be held on April 6-8. The market was hoping that this time there might be some relief in interest rates, but the increasing tension in West Asia has changed the equation.
According to the latest report of SBI Research, in view of global uncertainty and rise in crude oil prices, RBI will not make any change in the repo rate at present. Even in the previous meeting held in February, there was no change in the interest rate. Currently the interest rate is at 5.25%.
Worldwide turmoil, impact on supply chain
SBI Research report states that the increasing conflict between Israel and Iran has put the entire world in crisis. The closure of the Strait of Hormuz has caused the biggest disruption in the global oil market since 1973. This is the first policy review since the beginning of the war, so RBI will take steps with great caution.
Rupee crosses 93 against dollar, ‘imported inflation’ will increase
India is not untouched by this global crisis. Crude oil prices remain above $100 per barrel, due to which ‘imported inflation’ is increasing in India.
According to the report, the rupee has crossed the level of 93 against the dollar. Along with this, there is also a danger of ‘Super El Nino’, which may further worsen the inflation situation in the future.
Inflation may remain above 4.5% for the next 3 quarters
There are no less challenges on the domestic front as well. The report warns that imported inflation has already reached 5.4% and is likely to increase 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, it may be risky for RBI to cut interest rates.
Focus will be on liquidity management, discussion of ‘Operation Twist’
The report suggests that RBI can work on improving market liquidity and microstructure instead of focusing only on interest rates. To manage the yield of government bonds, the central bank can take steps like ‘Operation Twist’ (buying long term bonds and selling short term bonds). Additionally, the recent stringent measures taken to prevent speculation in the currency market may also pose some operational challenges for banks.
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