RBI Flags Inflation Spillover Risks From Middle East Conflict
India's central bank governor warned that the Middle East conflict could fuel persistent inflation due to supply disruptions and the country's economic ties to the region. The RBI is likely to remain in a 'wait and watch' mode, influencing inflation expectations rather than using rate hikes.
India's central bank governor, Sanjay Malhotra, stated that the ongoing Middle East conflict poses a risk of persistent inflation if supply disruptions continue, given India's significant economic links to the region. The conflict is affecting India's energy security and trade, with the region accounting for a substantial share of India's exports, imports, crude oil shipments, and fertilizer imports. The RBI has so far maintained a 'wait and watch' approach, holding rates steady in April to assess the impact of surging oil prices. Malhotra emphasized that the central bank would focus on influencing inflation expectations rather than using blunt rate hikes. The RBI is expected to remain data-dependent, with rate hikes uncertain due to the volatile situation. India's economy is under pressure from potential fuel price hikes, which could add to existing inflationary pressures.
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