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The Reserve Bank's Monetary Policy Committee (MPC) is set to announce its first bi-monthly review of the fiscal year after a three-day meeting. Analysts expect the central bank to maintain the current benchmark lending rate, balancing retail inflation trends and global uncertainties. While domestic inflation is nearing the RBI's 4% target, rising crude prices and a weaker rupee pose upward risks. Experts note that the MPC will monitor liquidity, financial stability, and capital flows closely. The RBI's cautious approach reflects a focus on flexibility amid volatile global and domestic conditions.
The Reserve Bank's rate-setting panel began a three-day meeting earlier this week to review the first bi-monthly monetary policy of the fiscal year. The six-member Monetary Policy Committee, led by Governor Sanjay Malhotra, is expected to announce its decision shortly. Observers anticipate a hold on the benchmark lending rate, reflecting concerns about rising inflation linked to ongoing geopolitical tensions in West Asia. Advertisement
Since February 2025, the RBI has reduced rates by a total of 125 basis points, marking its most significant easing cycle since 2019. The last reduction of 25 basis points came in December, while the February meeting maintained the status quo.
Experts said the committee will carefully consider continuing global volatility, including fluctuations in commodity prices and sharp currency movements that are affecting the domestic rupee. Retail inflation has moved closer to the RBI's medium-term target of 4%, but recent surges in crude oil prices have raised concerns about potential second-round effects on fuel, transportation, and core inflation. Estimates suggest that every USD 10 rise in crude prices per barrel can push inflation up by around 0.60 per cent.
Crude prices, which hovered around USD 60 per barrel for a long time, have risen above USD 100 since the conflict in West Asia began in late February. The rupee has also weakened by more than 4 per cent since the crisis, adding pressure on import-driven inflation.
Analysts expect the central bank to maintain a neutral policy stance, signaling a preference for flexibility amid evolving domestic and global risks. The tone of the policy is likely to remain cautious, highlighting upside inflation risks from energy prices and geopolitical developments. Policymakers will continue to factor in liquidity conditions, the transmission of previous rate changes, and financial market stability while monitoring currency movements, capital flows, and bond market dynamics.
The government has requested that the RBI maintain retail inflation at 4 per cent with a tolerance of 2% on either side through March 2031. India adopted an inflation-targeting framework in 2016, giving the MPC the mandate to keep annual inflation at 4 per cent, with an upper limit of 6 per cent and a lower threshold of 2% a framework that remains in place. Latest data shows retail inflation rose to 3.21 per cent in February from 2.74 per cent in January.
Source PTI
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