The Reserve Bank of India (RBI) on Wednesday lowered its economic growth forecast for the current financial year (FY27) to 6.6% and raised its inflation projection to 5.1%, citing rising energy prices, supply-chain disruptions and heightened uncertainty stemming from geopolitical tensions.
While announcing the Monetary Policy Committee's decision to keep the repo rate unchanged at 5.25%, RBI Governor said the global environment had worsened since the last policy review, with the ongoing conflict exerting pressure on commodity prices and disrupting supply chains.
The central bank now expects India's GDP growth to moderate to 6.6% during the current financial year from its earlier projection of 6.9%, reflecting the impact of higher input costs and weaker global demand.
"The rise in prices of energy and other inputs coupled with supply disruptions is likely to weigh on economic activity," the Governor said, noting that prolonged geopolitical uncertainty could delay supply-chain normalisation and increase costs for businesses.
Despite the downward revision, the RBI said the domestic economy continues to display resilience.
Private consumption remains supported by discretionary spending, investment activity has maintained momentum, and manufacturing as well as services sectors continue to expand. Merchandise exports recorded strong growth in April despite elevated freight and insurance costs, while services exports have remained robust.
The central bank, however, cautioned that downside risks to growth remain significant due to volatile commodity prices, financial market uncertainty, supply-chain disruptions and weather-related risks.
At the same time, the RBI raised its inflation forecast for the fiscal year to 5.1% from the earlier estimate of 4.6%, reflecting the sharp rise in global crude oil and commodity prices.
The Governor noted that international crude oil prices have averaged around $110 per barrel in recent months, substantially higher than the $85 per barrel assumption used in the previous policy review. Higher prices of fuel, fertilisers and industrial inputs such as chemicals, metals, rubber and plastics are expected to feed into consumer prices over the coming months.
While headline consumer price inflation remained below the target in March and April, the RBI warned that inflationary pressures are likely to intensify. The central bank said second-round effects through wages and inflation expectations could emerge if supply-side shocks persist.
According to the RBI's revised projections, inflation is expected at 4.4% in the first quarter, 5.1% in the second quarter, 5.9% in the third quarter and 5.4% in the fourth quarter, resulting in an annual average of 5.1%.
The RBI said risks to the inflation outlook remain tilted to the upside because of uncertainty surrounding global commodity prices, supply-chain disruptions, the spatial and temporal distribution of the southwest monsoon and potential weather-related shocks.
Despite the challenging backdrop, the Monetary Policy Committee assessed that domestic demand remains resilient and that inflation pressures, though rising, warrant continued monitoring rather than an immediate policy response. The committee therefore unanimously decided to leave the policy repo rate unchanged while retaining the neutral stance.
