The Reserve Bank of India is likely to leave interest rates unchanged in its policy review on Friday, with any future tightening dependent on how inflation and economic growth evolve, according to former IMF Deputy Managing Director and Chief Economist Gita Gopinath.
Speaking to ANI ahead of the RBI's monetary policy decision, Gopinath said the central bank is navigating a complex environment marked by elevated crude oil prices, rupee depreciation and emerging signs of softer economic activity.
"I expect that in the near term the RBI will likely be on hold, but then eventually maybe in the future depending upon developments and what's happening with inflation, they can respond," she said.
Gopinath said a data-dependent approach remains the most appropriate course for policymakers. While higher oil prices have increased inflation concerns, she noted that the pass-through to retail fuel prices has so far been limited.
"There's been some increase but not that much," she said.
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On the currency front, Gopinath backed the RBI's handling of the rupee amid volatility linked to tensions in the Strait of Hormuz and the broader West Asia conflict.
"RBI has handled this very well. They have let the rupee adjust, which it should do because we have a change in the international environment," she said.
At the same time, she supported foreign-exchange interventions aimed at curbing excessive volatility, while cautioning against efforts to artificially hold the currency at a fixed level.
"I think what you should avoid against is doing an intervention that keeps the currency from simply not moving at all," she said, adding that the RBI's current approach is "appropriate".
Gopinath also warned that India's growth trajectory could come under pressure if elevated oil prices persist. While the IMF currently projects India's economy to grow 6.5%, she said growth could move closer to 6% as higher energy costs weigh on consumption and investment.
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"We are not going to see the price of oil come down all the way very quickly. It's going to take probably till the middle of next year for oil to come back to say $70 or $75 a barrel," she said.
She cautioned that if tensions in West Asia continue for another month, oil prices could surge to $120-$140 a barrel, dragging global growth below current forecasts and adding further pressure on India's economy.
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