GR RBI MPC Poll: No Rate Cut In April, RBI To Opt ‘Wait-Watch’ Strategy As Iran-US War Poses Stagflation Risk

RBI MPC Survey: The Reserve Bank of India, in its Monetary Policy Committee, scheduled to begin on April 6, is likely to keep the repo rate unchanged at 5.25%, as per a Goodreturns poll. The RBI MPC is likely to maintain a neutral stance and may revise the inflation target as India continues to face the ripple effects of the Iran-US war.

Over 92% Goodreturns poll participants expect the RBI to maintain a status quo as geopolitical concerns raise inflationary pressures and put India at risk of 'stagflation.' Notably, the Iran-US war in West Asia entered its second month in April with no signs of easing.

"The Iran-US war raises stagflation risks for India, leaving the RBI with a challenging policy trade-off. In the near term, growth is likely to take a bigger hit than inflation, as higher crude prices, a weaker rupee, and tighter financial conditions weigh on consumption, investment, and external stability," explained Rajeev Sharan, Head of Research, Brickwork Ratings.

In its previous MPC meeting, held in February, the RBI kept the repo rate unchanged with a neutral stance. The decision was made against the backdrop of a benign inflation outlook, healthy domestic growth momentum and external prospects. This time, Iran-US war is likely to cast influence on RBI's inflation and GDP growth forecasts, experts warn.

RBI MPC Meeting in April: Goodreturns Poll Sees No Rate Cut

A total of 23 out of 25 market participants voted in favour of the RBI repo rate cut unchanged and its neutral stance, which accounted for 92% of the total respondents. Only two market participants hinted that there could be some possibility of a rate cut.

The six-member panel, headed by Governor Sanjay Malhotra, will meet between April 6 and April 8 to hold a discussion on the repo rate.

RBI To Maintain Neutral Stance

The RBI is likely to maintain a neutral stance and opt for a 'wait and watch strategy' in its April meeting. "If a cut does come, it is more likely to be a token 25-basis-point move rather than anything larger. But as of now, the balance of probabilities clearly favours no change in the repo rate, with the RBI likely to keep its neutral stance and preserve room for action in the coming meetings if growth weakens further," stated Sharan.

Iran-US War Impact

The Iran-US was has triggered a supply crunch in crude oil, petroleum gas and key petrochemical products, with ripple effects likely to be felt across industries and households alike. Rising global energy concerns could weigh on industrial output, as higher input costs and supply disruptions pressure manufacturing activity. This, in turn, poses downside risks to economic growth while keeping inflation elevated over the longer term.

"On inflation, consumers for now, remain relatively insulated in the near term due to government intervention in fuel pricing through excise duty cuts and earlier tax adjustments from GST rationalisation. The upside compared to last fiscal is therefore only on account of food inflation that will normalise from record lows," explained Dipti Deshpande, Principal Economist, Crisil Limited.

Iran-US War To Have Immediate Impact on GDP

The geopolitical uncertainty has put the RBI in a challenging policy dilemma. The war in West Asia has triggered a chain reaction, fuelling the crude oil prices, putting pressure on the Indian Rupee, and strengthening the US Dollar, etc. These developments are likely to weigh on consumption and investment.

"The immediate impact may be slower GDP growth, but the second round risk is stronger inflationary pressures. This could keep the RBI cautious and delay any rate cut cycle, making India's 'Goldilocks' scenario harder to sustain," added Sharan.

Despite the lagging effects of geopolitical tensions on inflation, surging food prices may drive RBI's revision of near-term inflation targets.

"A forecast increase is certainly likely in the April meeting, but more to do so with how fast food price pressures are coming back at the margin," stated Miguel Chanco, Chief Emerging Asia Economist, at Pantheon Macroeconomics, while sticking to the view that the RBI will keep rates on hold for an extended period.