RBI
RBI unlikely to postpone policy shift despite limited impact of Iran-Israel tensions
Mumbai/IBNS: The growing tensions between Israel and Iran are not expected to prompt the Reserve Bank of India (RBI) to delay its shift in monetary policy, as experts suggest the impact on the economy and crude oil prices remains minimal, reports Moneycontrol.
Many economists anticipate that the RBI will adopt a 'neutral' stance during its December policy meeting, while maintaining the current 'withdrawal of accommodation' stance in October.
This 'neutral' position would allow the central bank to either raise or lower interest rates, balancing concerns about both inflation and growth, according to reports.
“The Middle East issue has led to a rise in oil prices and could cause some disruption. However, the bigger concern is the upcoming US elections and potential tariff hikes that could affect global supply chains. That said, we were not expecting any changes in rates or stance,” Indranil Pan, chief economist at YES Bank, was quoted as saying by Moneycontrol.
The Monetary Policy Committee (MPC) of the RBI began its meeting on October 7, with the outcome set to be announced on October 9.
According to a Moneycontrol survey of 12 financial experts, the MPC is likely to keep the policy repo rate unchanged, as inflation and growth risks remain stable.
However, expectations of a stance change and potential rate cuts in December are gaining momentum.
Tensions escalated between Iran and Israel after Iran launched nearly 200 ballistic missiles at Israel in response to the conflict in Gaza.
Following this, Israeli Prime Minister Benjamin Netanyahu warned of consequences for Iran’s actions.
Despite the rise in crude oil prices triggered by these events, the impact on India’s inflation is expected to be marginal.
Experts suggest that oil prices need to rise by $10 per barrel or more for India’s current account deficit to increase by 0.55 percent, with a corresponding 0.3 percent (or 30 basis points) rise in consumer price inflation.
Kanika Pasricha, chief economic advisor at Union Bank of India, told Moneycontrol, “We didn’t expect a change in stance in October. The Middle East tensions, combined with the spike in US yields following strong labor market data, further support this view.”
Economists also believe that the RBI is unlikely to adjust its inflation projections.
Madhavi Arora, lead economist at Emkay Global Financial Services, told Moneycontrol that despite the geopolitical unrest, India’s central bank's policies on inflation and growth will likely remain unchanged.
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