RBI Cites Risk to Inflation and FY27 Growth from Prolonged West Asian Conflict

India's Growth Prospects Remain Positive Amid West Asia War Uncertainty

The Reserve Bank of India (RBI) has expressed its confidence in India's growth trajectory, despite the ongoing West Asia war and its potential impact on the global economy. In its latest annual report, the central bank noted that India's strong macroeconomic fundamentals, including healthy corporate and banking sector balance sheets, as well as the government's continued thrust on capital expenditure, bode well for the country's growth prospects.

RBI Maintains FY27 Growth Forecast at 6.9 Percent

The RBI has left its forecast for India's real GDP growth in FY27 unchanged at 6.9 percent, despite the risks posed by the West Asia conflict. However, the central bank has flagged a potential downside risk, citing the possibility of a prolonged conflict. Inflation is expected to remain contained at 4.6 percent, although the RBI has noted that risks are tilted to the upside.

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Economists Expect Inflation to Cross 5 Percent

A recent Moneycontrol poll revealed that economists expect inflation to cross 5 percent in the current fiscal year, provided the West Asia crisis does not escalate beyond the first half of FY27. The RBI has identified several factors that could contribute to higher inflation, including a spike in global fuel and commodity prices, potential spillovers to input and wage costs, and volatility in the exchange rate.

RBI Sees Adequate Foodgrain Stocks as a Buffer Against Inflation

Despite the upside risks to inflation, the RBI is confident that the country's adequate foodgrain stocks, sufficient reservoir levels, and stable agricultural prospects will help keep inflation on target. However, the central bank has cautioned that a further escalation of the conflict or its wider spread remain key downside risks to the global economic outlook.

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RBI to Maintain Interest Rates Steady

The RBI's monetary policy committee (MPC) is set to meet next week, with economists expecting the central bank to keep interest rates steady. The RBI has since hit the pause button after delivering a cumulative 125 bps repo rate cut between February and December 2025.