NEW DELHI: The Reserve Bank of India (RBI) has projected India’s economic growth to moderate to 6.9% in 2026-27, while inflation is expected to edge higher to 4.6%, as geopolitical tensions and global supply disruptions cloud the macroeconomic outlook.
Announcing the first bi-monthly monetary policy of FY27, the RBI said the Monetary Policy Committee (MPC) retained the policy repo rate at 5.25% and maintained a neutral stance, citing a complex trade-off between supporting growth and containing inflation.
Growth outlook moderates
The central bank expects real GDP growth to ease from an estimated 7.6% in 2025-26 to 6.9% in the current fiscal. Quarterly projections indicate growth at 6.8% in Q1, 6.7% in Q2, 7.0% in Q3, and 7.2% in Q4.
The RBI noted that while the domestic economy remains resilient—supported by strong private consumption, rising investment, healthy corporate and bank balance sheets, and sustained services sector momentum—external headwinds could weigh on growth.
Escalating geopolitical tensions in West Asia, particularly disruptions in key shipping routes and risks around energy supplies through the Strait of Hormuz, are expected to raise input costs and dampen exports. Higher freight and insurance costs, along with supply-chain disruptions, could further constrain manufacturing activity.
However, the central bank highlighted that the government’s push to scale up domestic manufacturing in strategic sectors, along with improving capacity utilisation, would lend support to growth.
Inflation to rise but remain within target
On the inflation front, the RBI projected headline consumer price inflation (CPI) at 4.6% for FY27, with a quarterly trajectory of 4.0% in Q1, 4.4% in Q2, 5.2% in Q3, and 4.7% in Q4.
The central bank noted that inflation, which rose to 3.2% in February 2026 from 2.7% in January, remains below the 4% target but faces rising upside risks.
Volatility in global energy and commodity prices due to the ongoing conflict is expected to push up fuel costs, with early signs of pass-through already visible in select segments such as petrol, LPG, and industrial diesel.
At the same time, a robust rabi harvest is expected to support food supplies and provide some near-term relief on food inflation.
Core inflation, excluding food and fuel, remains subdued, with underlying price pressures seen as largely contained. The RBI projects core inflation at 4.4% for FY27, with even lower readings when excluding precious metals.
Risks tilted to the upside
The RBI flagged that risks to both growth and inflation are elevated. A prolonged or intensifying conflict in West Asia, potential damage to energy infrastructure, and weather-related uncertainties such as possible El Niño conditions could significantly alter the outlook.
While growth faces downside risks from rising costs and external demand weakness, inflation risks are tilted upward due to energy price shocks and potential second-round effects.
Policy stance: Wait and watch
Given the uncertain environment, the MPC opted for a “wait and watch” approach. It emphasised that India’s macroeconomic fundamentals remain strong and better positioned to absorb shocks compared to the past.
“The economy is confronted with a supply shock,” the RBI noted, adding that the central bank will remain vigilant and retain flexibility to respond to evolving conditions.
The neutral stance signals that future policy action will depend on incoming data, with the central bank balancing the need to anchor inflation expectations while sustaining growth momentum.