Economists at Citigroup Inc dropped their call for two interest-rate hikes by the Reserve Bank of India through March next year, saying an interim US-Iran peace deal has reduced the risk of higher oil prices fueling inflation.

India, which is heavily reliant on oil imports from West Asia, faces headwinds from higher energy prices as well as forecasts of a weaker monsoon season this year as the El Niño weather phenomenon takes hold. The lacklustre rain so far is hampering the growing season for staples from rice to soybeans, as well as disrupting key sectors like construction.

“If the West Asia truce holds, then the RBI will not have to worry about at least one of the two shocks,” Citi’s Samiran Chakraborty and Baqar Murtaza Zaidi wrote in a note on Wednesday. “This will offer the monetary policy committee some space to be patient and look through the El Niño-driven weather shock.”

The duo would consider bringing back the hike expectations “if there is any breakdown in the West Asia truce or the El Niño shock destabilises inflationary expectations”, they wrote.

Citi also raised India’s growth forecast for the fiscal year through March 2027 by 30 basis points to 6.9 per cent and cut its estimates for inflation to 4.7 per cent from 4.9 per cent. Those figures are better than the RBI’s own projections released earlier this month. The central bank sees economic growth of 6.6 per cent in the period, with inflation climbing to 5.1 per cent.

The revisions followed Citi’s cut to its average oil-price forecast for July through March to $70 a barrel from $93 previously.