Mumbai (Maharashtra) [India], April 22 : Members of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) have highlighted the West Asia conflict, disruptions in the Strait of Hormuz, and elevated crude oil prices as major risks to India's growth and inflation outlook, according to the minutes released on Wednesday.
MPC member Dr Nagesh Kumar said the global and domestic outlook has been significantly impacted by the conflict, reversing the earlier "goldilocks" phase of high growth and low inflation.
He noted that India's dependence on crude oil, natural gas and fertiliser imports from the Middle East has amplified the impact, with the blockage of the Strait of Hormuz pushing oil prices sharply higher.
He said, "The overall economic sentiment is also affected, with international agencies lowering the global GDP growth projections for 2026 by 40 basis points to 2.9 per cent from 3.3 per cent in 2025. The rupee has come under pressure due to the combined effect of rising oil prices, short-term capital outflows, and the strengthening of the dollar."
He projected India's growth at 6.9 per cent for FY27, down from 7.6 per cent, and inflation at 4.6 per cent, driven largely by supply shocks.
Saugata Bhattacharya highlighted that the growth-inflation trade-off has become more uncertain due to geopolitical tensions.
He said energy prices are unlikely to return to pre-conflict levels in the near term, and global supply chain disruptions could have lasting macroeconomic effects.
He also flagged rising inflation expectations, noting that short-term expectations increased by 60 basis points. He cautioned that both rate hikes and rate cuts carry risks in the current uncertain environment.
Another MPC member, Prof Ram Singh, pointed out that crude oil prices surged by over 40 per cent, crossing USD 104 per barrel by the end of March, with peaks above USD 110.
He said the conflict has lowered growth forecasts by 50-60 basis points and increased inflation risks. While inflation is projected at 4.6 per cent, he noted it remains within the tolerance band.
He also highlighted that MSMEs are particularly impacted due to rising input costs and limited financial capacity.
Indranil Bhattacharyya said the disruption in logistics and supply chains has affected global trade flows, especially through the Strait of Hormuz, which accounts for about half of India's energy imports.
He noted that while merchandise exports may face pressure, services exports are expected to remain resilient. He added that inflation risks have increased but remain manageable as long as expectations stay anchored.
Poonam Gupta said the Indian economy has shown resilience amid multiple global shocks, including the pandemic and geopolitical conflicts. She noted that inflation is projected at 4.6 per cent in FY27 but remains within the tolerance band, while growth is expected at 6.9 per cent.
She emphasised that monetary policy should support the economy while maintaining vigilance amid global uncertainty.
Across members, there was a consensus that the current inflationary pressures are driven by supply shocks, particularly from energy prices, and that monetary policy has limited ability to directly address such factors.
Given the heightened uncertainty and evolving geopolitical situation, all MPC members supported maintaining the policy repo rate at 5.25 per cent and retaining a neutral stance, indicating a cautious approach while monitoring incoming data and global developments.
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