New Delhi, March 24 -- The Reserve Bank of India's (RBI) policy response to the ongoing energy price shock is likely to be challenging due to multiple trade-offs involving inflation, growth, liquidity and currency stability, according to a report by Emkay Research.

The report highlighted that there is no straightforward policy approach to deal with an energy-driven shock, especially when inflation remains relatively benign but risks are rising due to second-round effects.

It stated "RBI's battle unlikely to be easy, FX and rates trade-offs".

It noted that before the conflict, the RBI's focus was on improving monetary policy transmission, particularly in the bond market, supported by ample liquidity that kept overnight rates below the p...