Experts say that even if the United States (US) and Iran soon arrive at an agreement, resulting in the opening of the strait, it will take months before supplies are restored to normal levels. A potential deal between Iran and the US will obviously help reduce oil prices, though they may still remain elevated for some time. However, things could dramatically change if the war resumes — a prospect that cannot be ruled out. Thus, there are various possibilities. However, oil prices are not the only uncertainty the MPC has to deal with. The monsoon this year is expected to be below normal because of the developing super El Niño conditions, and could have an effect similar to the oil shock — higher inflation with lower growth. Central banks usually look through supply shocks, though higher rates always risk affecting expectations, potentially causing second-round effects. The complexity for Indian policymakers is that they might have to deal with two simultaneous shocks.
Given the prevailing uncertainties and several moving parts, it makes sense for the MPC to leave the policy rate unchanged and wait for greater clarity, while keeping the option to act if necessary. Aside from the policy decision, financial markets will also closely look at revised forecasts of inflation and growth. In this regard, it is worth noting that the National Statistics Office will publish the annual gross domestic product (GDP) numbers for 2025-26, as well as the fourth-quarter data, just hours after the monetary-policy decision is announced on Friday. To reduce the information gap, one of the two announcements could have been adjusted. Be that as it may, the RBI will likely revise its growth projection lower from 6.9 per cent for 2026-27. The latest data on goods and services tax and the index of industrial production suggests some weakness in activity.