The Reserve Bank of India's Monetary Policy Committee is expected to keep the repo rate unchanged at 5.25% and retain its "neutral" stance at its upcoming meeting, according to 10 economists polled by NDTV Profit.
Economists expect the six-member panel to adopt a wait-and-watch approach as it assesses the impact of the ongoing West Asia conflict on the Indian economy. They said policymakers are likely to monitor potential second- and third-round effects before considering any change in interest rates.
The outlook for growth, inflation and the rupee will be closely watched during the meeting. Economists said a prolonged conflict could prompt the MPC to consider a 25-50 basis point increase in the repo rate during the second half of the current financial year. They also expect the central bank to lower its GDP growth forecast and raise its inflation projection if external pressures persist.
The RBI may also announce measures to support the rupee, which approached the 97-per-dollar level last month. Economists said possible steps could include FCNR deposits, NRI bonds, easier external commercial borrowing norms or a dedicated window allowing oil marketing companies to borrow in U.S. dollars.
Policy Outlook
Sujit Kumar, chief economist at NABFID, said the MPC is likely to maintain the current policy rate and stance as the RBI may prefer to wait for additional consumer inflation data before taking action.
"Commentary from the Governor will be important especially in light of his recent views about INR being undervalued, as market participants try to gauge the seriousness of the challenges faced amid West Asia crisis. Overall, this MPC is expected to be eventful," he said.
Kumar said NABFID expects two rate increases of 25 basis points each later in the financial year.
Focus on Inflation, Rupee
Rajani Sinha, chief economist at CAREEdge Ratings, said the RBI is likely to maintain a wait-and-watch approach amid external volatility while assessing whether current price pressures are temporary or more persistent.
She said the recent rise in inflation is being driven by supply-side factors rather than demand.
"Measures aimed at supporting the rupee - including measures to attract capital flows and special dollar liquidity facilities for oil marketing companies (OMCs) - may also be considered in the meeting," she said.
Sinha added that the tone of the policy statement will remain important, as the possibility of policy rate increases later in the year cannot be ruled out if the West Asia conflict continues for an extended period.
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