The Reserve Bank of India (RBI) faces a delicate balancing act between supporting economic growth and containing inflation as external shocks from the West Asia conflict disrupt macroeconomic stability.
With crude prices surging and supply chains under strain, markets widely expect the RBI to maintain the status quo on the 5.25 per cent repo rate. However, attention will be on whether it will shift its policy stance from “neutral” to a more hawkish bias.
The disruption from war has unsettled India’s earlier “goldilocks” economic conditions, particularly with the Indian crude basket rising above $130 per barrel. As the Monetary Policy Committee (MPC) concludes its meeting on April 8, investors and economists will also closely track any revisions to the RBI’s growth and inflation projections.
At its February policy review, the RBI had projected real GDP growth at 6.9 per cent for Q1FY27, and 7 per cent for Q2FY27, with CPI inflation estimates at 4 per cent and 4.2 per cent, respectively. These projections, however, predate the escalation in geopolitical tensions and are now widely expected to be revised.
A key concern remains the sharp rise in crude oil prices, which has significant implications for inflation. The Indian basket has climbed from $69.01 per barrel in February to $130.93 as of early April. V. Anantha Nageswaran, India’s chief economic adviser, has warned that sustained oil prices at these levels for two to three quarters could push FY27 inflation to 5.5 per cent while dragging growth down to 6.4 per cent.
External vulnerabilities have also intensified. Foreign portfolio investors recorded outflows of $16.6 billion in FY26, with March alone accounting for $13.6 billion — the highest since March 2020. Meanwhile, the rupee has exhibited significant volatility, weakening past the 90 mark earlier this year and touching an intraday low of 95 before recovering to around 93 following RBI’s intervention to curb speculative positions against the domestic currency.
India’s balance of payments is also expected to slip into a deficit of $31 billion in FY27, adding to macroeconomic pressures. Analysts emphasise that the RBI’s communication will be critical in shaping market expectations. The central bank may need to clarify whether the oil price shock is transient or likely to trigger second-round effects, particularly on core inflation.
“We expect the RBI to maintain the status quo in the upcoming policy. But as this is the first policy since the start of the (West Asia) war, RBI would have to be much more careful in communicating its position,” said Soumya Kanti Ghosh, group chief economic adviser, SBI. With surplus system liquidity falling, Ghosh said the RBI may also have to consider measures that keep the bond yield rangebound.
“We think an extended pause on the policy rates through this fiscal year seems to be the most likely scenario. But there are competing factors - an anticipated slowdown in growth rates and an increase in CPI inflation. Data and developments would be the key in every subsequent MPC meeting,” said Aditi Nayar, chief economist, Icra.