RBI Sees No Immediate Impact On Remittances Amid Iran Truce, Flags Global Risks

The Reserve Bank of India (RBI) does not anticipate any immediate dent to remittance inflows despite ongoing geopolitical developments in West Asia, Governor Sanjay Malhotra said on April 8 during the post-monetary policy press conference.

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“We are not anticipating a dent to remittances if the crisis is going to be resolved very soon,” Malhotra said, according to Moneycontrol, referring to the recent ceasefire agreement between the U.S. and Iran.

Remittance Flows Remain Stable For Now

The Governor noted that India’s remittance inflows are geographically diversified, reducing dependence on any single region. He said the share of Gulf countries in total remittances has declined over time.

However, he cautioned that global economic conditions could influence flows. “Weaker global growth prospects may dampen external demand and reduce remittance flows,” he added.

According to an SBI Funds Management report cited by Moneycontrol, about 38% of India’s inward remittances originate from the Middle East, with nearly half of that coming from the UAE.

RBI Holds Policy Rates Steady

Earlier on April 8, the RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.25%. The Standing Deposit Facility (SDF) rate remains at 5%, while the Marginal Standing Facility (MSF) rate and bank rate are at 5.5%, as per the central bank’s policy statement.

The move is indicative of the existing stance of policy in the face of uncertainties in the international environment and at home.

Inflation Risks Cited

The Governor mentioned higher risks of inflation from geopolitical tensions, high energy prices, and possible weather events that could impact food prices.  While food inflation has seen some increase, core inflation pressures remain relatively contained, he said.

The SBI Funds Management report also noted that higher crude oil prices could impact India’s external balances. It is estimated that every $10 per barrel increase in crude oil prices could widen the current account deficit by $15 billion annually.

Policy Measures And Financial Stability

Malhotra said some recently announced capital-related measures were introduced in response to industry demand and are aimed at aligning regulatory frameworks. According to him, the RBI is also working towards enhancing financial markets in the long run.

The central bank further clarified that it is keeping an eye on various global issues, including geopolitical risks and their possible spillovers through trade, remittances, and the financial channel.

The RBI report shows stable remittances in the short term but still considers global risks relating to global economic growth and oil prices.