MUMBAI: Caught between a slowing economy and the risk of a fresh price spiral triggered by the conflict in West Asia, the RBI on Friday left the repo rate unchanged at 5.25%, cut its growth forecast for FY27 and raised its inflation projections, while signalling that the inflation threat could broaden economy-wide beyond fuel and commodities if supply-side pressures persist.Governor Sanjay Malhotra stopped short of tightening policy but left little doubt that the central bank is wary of what it calls the “generalisation” of inflation. While higher oil prices and disrupted supply chains have already started feeding into costs, the Monetary Policy Committee preferred to wait for more clarity on the duration and intensity of the conflict before acting.“Although the impact of cost pressures is becoming visible, going ahead, the rise in prices of energy and other inputs coupled disruptions is likely to weigh on economic activity,” the governor said.The MPC unanimously voted to keep the policy repo rate unchanged at 5.25% and retain the neutral stance. The decision reflects a central bank attempting to balance inflation risks against emerging signs of moderation in economic activity. The RBI lowered its FY27 growth forecast to 6.6% from 6.9% projected earlier, citing a deteriorating global environment Quarterly growth is now projected at 6.6% in Q1, 6.3% in Q2, 6.5% in Q3 and 6.8% in Q4. The downgrade marks the RBI’s acknowledgement that the economic fallout from the conflict is no longer confined to energy markets. “Global supply chain disruptions, volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook,” governor Malhotra said.The inflation outlook has worsened more sharply. RBI raised its FY27 CPI inflation forecast to 5.1% from 4.6%, a 50-basis-point revision that largely reflects the surge in crude oil prices. The Indian basket has averaged around $110 a barrel over the past two months, far above the $85 assumption used in the April policy review. Malhotra hinted at policy action if prices remain sticky. A weak monsoon-El Nino mix further clouds food inflation. RBI now sees inflation at 4.2% in Q1, 5.1% in Q2, 5.9% in Q3 and 5.4% in Q4, with core inflation at 4.7%. For now, Mint Road is holding fire. But if input-cost inflation spreads and expectations harden, growth support could yield to inflation-fighting. RBI argued India enters this turbulence with stronger fundamentals than in past oil shocks and stands ready to recalibrate policy as conditions evolve.
