India Central Bank Holds Rates; Mideast Fuels Inflation Risk

The RBI's six-member monetary policy committee voted unanimously to hold the repo rate steady and maintain a "neutral" stance, aligning with 69 of 71 economists polled by Reuters. India, importing 90% of its oil, faces significant exposure to prolonged war-related disruptions, which already caused the rupee to slide to a record low and foreign funds to pull nearly $19 billion from markets between March and early April.

RBI Governor Sanjay Malhotra stated that while inflation remains in check, risks are on the upside, with higher oil prices and gas shortages potentially denting growth momentum. The central bank forecasts GDP growth to fall to 6.9% in 2026-27 from 7.6% in the year ended March 31, 2026, and average inflation at 4.6% for the current financial year, within its 2-6% target band.

An assumed oil price of $85 per barrel underpins these forecasts; a 10% increase in oil prices pushes inflation up by 50 basis points and pares growth by 15 basis points. Economists like Radhika Rao of DBS Bank expect the RBI to monitor second-round effects before considering rate hikes, while Garima Kapoor of Elara Securities suggests the 6.9% growth estimate may need reassessment due to potential delays in energy export volumes.

The RBI will continue to contain excessive rupee volatility and ensure adequate banking system liquidity.