RBI Deputy Governor Poonam Gupta indicates the central bank is in 'wait-and-watch mode' on inflation risks amid West Asia conflict and energy price volatility. RBI assumes conflict will resolve within few months, with maximum growth impact in first half of fiscal year. Current inflation projection remains within tolerance band but above 4% target. No evidence of second-round effects or unanchored inflation expectations yet. RBI maintaining accommodative stance while monitoring geopolitical developments and supply chain disruptions carefully.

The RBI's wait-and-watch approach reflects classic monetary policy dilemma during supply-side shocks. Deputy Governor Gupta's stance demonstrates inflation targeting framework's flexibility—the ±2% tolerance band around 4% target allows temporary accommodation of external shocks without frequent rate changes. This approach works when inflation expectations remain anchored and second-round effects (wage-price spirals) are absent. India's advantage lies in informal labor markets with longer wage adjustment lags, unlike advanced economies with indexed wage contracts. The impossible trinity trade-off is managed through managed float exchange rate, gradual capital account liberalization, and domestically-focused monetary policy. RBI's credibility built over inflation targeting decade enables aggressive crisis response while maintaining price stability focus. Current strategy balances growth support against inflation vigilance, leveraging framework's proven track record during COVID, Ukraine war, and previous external shocks. Success depends on conflict duration, energy price normalization, and preventing temporary supply shocks from becoming entrenched inflation through expectation channels.