The minutes of the Reserve Bank of India’s Monetary Policy Committee (MPC) meeting, which were released on Wednesday, showed a shift in tone with members acknowledging that the economy’s recent “Goldilocks” phase of high growth and low inflation may be under threat from the West Asia conflict.
While the six-member panel voted unanimously to keep the repo rate unchanged at 5.25% and retain a neutral stance, the discussion reflected heightened concern over the growth–inflation trade-off.
RBI Governor Sanjay Malhotra stated that the economy is confronted with a supply shock and that it is “prudent to wait and watch, before making any decisive move.” He emphasised that underlying inflation pressures remain contained and that India is “on a much stronger footing to withstand these shocks.”
Growth for 2026-27 projected at 6.9%
Growth for 2026-27 is projected at 6.9%, down from 7.6% in 2025-26, with quarterly growth ranging between 6.7-7.2%. Members flagged downside risks to growth and upside risks to inflation as long as geopolitical tensions persist.
MPC member Nagesh Kumar observed that at the time of the February meeting, “the Indian economy appeared poised to sustain the so-called ‘goldilocks’ phase for longer,” with growth potentially touching 8%.
However, the West Asia conflict has “dramatically clouded the economic outlook,” he said, citing India’s dependence on crude oil and natural gas imports from the region and the disruption of the Strait of Hormuz. With crude assumed at $85 per barrel, growth for FY27 has been lowered to 6.9% and inflation projected at 4.6%.
What did MOC member Ram Singh say?
MPC member Ram Singh struck a similar note, stating that the conflict “could likely shift the Indian growth-inflation trade-offs from a Goldilocks state to the opposite extreme.” He pointed to a surge in Brent crude prices of over 40% in a month and described the current situation as an unusual challenge involving the “Growth-Inflation-Risk triad.”
Headline CPI inflation is projected at 4.6% in 2026-27, with risks tilted upward due to elevated energy prices and possible El Nino conditions.
Yet several members stressed that the shock is supply-driven. RBI Executive Director Indranil Bhattacharyya noted that supply-driven inflation “warrants a distinctly different policy response than a demand-driven one,” adding that monetary policy has “limited ability to quell the direct effects” of such shocks unless second-round effects emerge.
Another member Saugata Bhattacharya cautioned that “the risks of a policy mistake have heightened amidst this uncertainty,” arguing that both pre-emptive tightening and easing carry costs. He added that domestic financial conditions have already tightened significantly, amounting to “a de facto policy tightening.”
Poonam Gupta, deputy governor, said that the revised CPI and GDP series would yield more stable numbers, likely necessitating less significant revisions in the GDP series and less volatile and more accurate inflation figures. She added that under the current circumstances, central banks will need to continue to play a conducive role in supporting the productive requirements of the economy.