The Reserve Bank of India (RBI) kept the repo rate unchanged at 5.25% and retained its ‘Neutral’ stance, as the Monetary Policy Committee (MPC) opted for a cautious approach amid rising global uncertainties including Iran-US war. The RBI has assumed an average crude rate of $85/bbl for this year and $75/bbl for next year given the changed global dynamics.
“The economy is confronted with a supply shock. It is prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook,” RBI said noting that the ongoing conflict in West Asia, have increased risks to both growth and inflation.
“The MPC remains vigilant, closely monitoring incoming information and assessing the balance of risks,” he added.
#1. RBI trims FY27 growth outlook to 6.9%
RBI has projected India’s FY27 GDP growth at 6.9%, lower than the estimated 7.6% for FY26, citing elevated commodity prices and supply chain disruptions amid the West Asia crisis.
RBI Governor Sanjay Malhotra said merchandise exports could be hit due to disruptions in key shipping routes, along with rising freight and insurance costs.
He added that higher energy prices and supply shocks, including disruptions in the Strait of Hormuz, may weigh on domestic production and overall growth.
RBI has projected real GDP growth for FY27 at 6.9%, with quarterly growth at 6.8% in Q1, 6.7% in Q2, 7.0% in Q3 and 7.2% in Q4.
“West Asia conflict is likely to impede growth,” RBI noted.
#2. RBI pegs FY27 inflation at 4.6%, flags upside risks
The RBI has projected retail inflation for FY27 at 4.6%. Although the projection remains within the government’s target band of 4%, upside risks persist due to the Iran–US conflict.
“Headline inflation remains contained and below the target. However, upside risks to the inflation outlook, driven by increased energy price pressures and probable weather disturbances affecting food prices, have increased,” Malhotra said.
He added that core inflation pressures remain muted, but supply chain disruptions and possible second-round effects make the outlook uncertain.
The CPI-based inflation is projected at 4% in Q1, 4.4% in Q2, 5.2% in Q3 and 4.7% in Q4.
#3. RBI says measures to contain rupee volatility won’t remain forever
Speaking on the sharp deprecation in the rupee, the RBI has upped the exchange rate baseline assumptions for FY27. The RBI intervenes in the foreign exchange market to curb excessive volatility in the rupee. Movements in foreign currency assets are driven by such interventions, as well as changes in the value of foreign assets held in the reserves due to currency fluctuations. The RBI Governor indicated that the measures to contain volatility will not continue forever.
The Indian rupee saw sharp swings in recent months, moving between 87-92 against the US dollar from October to January. In March, however, depreciation pressures accentuated, and the rupee nosedived to 95 per US dollar, surpassing its previous record lows amid concerns over the West Asian conflict.
The Indian rupee has posted its biggest annual decline in 14 years in FY26, depreciating by 9.88 per cent against the US dollar, marking the sharpest fall since FY12 when the currency had weakened by 12.4%.
Meanwhile India’s foreign exchange reserves rose to $697.1 billion as of April 3, RBI Governor Sanjay Malhotra said on Wednesday. The reserves stood at $688.06 billion as of March 27, down from a record high of $728.49 billion in late February, largely due to the RBI’s intervention to stabilise the rupee.
#4. West Asia conflict a key concern
The RBI said the ongoing West Asia conflict could impact India through multiple channels, including higher crude oil prices, supply disruptions, and tighter financial conditions.
It warned that elevated energy prices could increase imported inflation and widen the current account deficit. Disruptions in key supply chains could also affect domestic production across sectors.
The central bank added that weaker global growth and rising uncertainty may impact exports and remittance flows.
#5. RBI to ensure ample liquidity amid market volatility
System liquidity remained comfortable during the period, with an average daily surplus of around Rs 2.3 lakh crore, the RBI said.
The central bank noted that money market rates largely stayed within the policy corridor, although some short-term rates remained elevated.
The RBI said it has been actively managing liquidity through both durable and transient measures, including open market operations and forex swaps.
Going ahead, Governor Sanjay Malhotra said the central bank will continue to remain proactive. “We will continue to be proactive and pre-emptive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy,” he said.
Conclusion
This was the first meeting of RBI in FY27 and since the Middle East war heightened in February. Next meeting of RBI’s rate-setting panel scheduled for June 3 to 5.