The Reserve Bank of India (RBI) on Friday left the repo rate unchanged at 5.25%, caught between a slowing economy and the risk of a fresh price spiral triggered by the conflict in West Asia. It cut its growth forecast for FY27 and raised its inflation projections, while signalling that the inflation threat could broaden economy-wide beyond fuel and commodities if supply-side pressures persist.
Policy Stance and Rate Decision
Governor Sanjay Malhotra stopped short of tightening policy but left little doubt that the central bank is wary of what it calls the 'generalisation' of inflation. While higher oil prices and disrupted supply chains have already started feeding into costs, the Monetary Policy Committee (MPC) preferred to wait for more clarity on the duration and intensity of the conflict before acting. The MPC unanimously voted to keep the policy repo rate unchanged at 5.25% and retain the neutral stance.
Growth Forecast Revised Down
The RBI lowered its FY27 growth forecast to 6.6% from 6.9% projected earlier, citing a deteriorating global environment. Quarterly growth is now projected at 6.6% in Q1, 6.3% in Q2, 6.5% in Q3, and 6.8% in Q4. The downgrade marks the RBI's acknowledgement that the economic fallout from the conflict is no longer confined to energy markets. 'Global supply chain disruptions, volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook,' Governor Malhotra said.
Inflation Outlook Worsens
The inflation outlook has worsened more sharply. The RBI raised its FY27 CPI inflation forecast to 5.1% from 4.6%, a 50-basis-point revision that largely reflects the surge in crude oil prices. The Indian basket has averaged around $110 a barrel over the past two months, far above the $85 assumption used in the April policy review. Malhotra hinted at policy action if prices remain sticky. A weak monsoon-El Nino mix further clouds food inflation. The RBI now sees inflation at 4.2% in Q1, 5.1% in Q2, 5.9% in Q3, and 5.4% in Q4, with core inflation at 4.7%.
Balancing Act Ahead
For now, Mint Road is holding fire. But if input-cost inflation spreads and expectations harden, growth support could yield to inflation-fighting. The RBI argued that India enters this turbulence with stronger fundamentals than in past oil shocks and stands ready to recalibrate policy as conditions evolve.
