Kolkata: The bigger West Asia crisis arising out of the US-Iran war can cloud GDP growth rates this year even as it stokes inflation concerns, Reserve Bank of India (RBI) governor Sanjay Malhotra said on Wednesday after the conclusion of the MPC (Monetary Policy Committee) meet, where the Repo Rate was left unchanged at 5.25%. The disruption in supply of crude oil and the hike in its prices have resulted in higher input costs and shocks for a number of industries. As a result, inflation concerns are growing in the current financial year, despite the country’s economic fundamentals being more robust than what it was during earlier shocks, Malhotra said. Significantly, only a few hours earlier a two-week ceasefire was announced in the US-Iran war and the RBI governor took note of this pause in conflict.
GDP growth projections
The impact of the energy shock has led the RBI to settle for lower growth GDP growth rates in the first two quarters of the current financial year. The growth rate projections in Q1, Q2, Q3 and Q4 in FY27 are 6.8%, 6.7%, 7% and 7.2%, said Malhotra. The downward pressure is mainly due to the supply shocks. The supply shock can translate into demand shock, cautioned the RBI governor.
Inflation projections
RBI also thinks that inflation can be slightly higher in the four quarters of the current financial year. The inflation projections in the four quarters are 4% in Q1, 4.4% in Q2, 5.2% in Q3 and 4.7% in Q4. The RBI has been mandated to keep retail inflation at 4% with a 2 percentage point margin on both sides.
The inflation rate for FY26 stands at 4.6%, the RBI governor said.
The RBI MPC meets once every two months to take a look at the interest rate and decide if there is a need to reset it. At its February 2026 meeting, the MPC unanimously decided not to alter the key policy rate at 5.25%. In a recent note SBI Research, the economic research wing of the State Bank of India said the central bank is not likely to change the Repo Rate this time too.
What RBI projected in its Feb meet
After its MPC meet in Feb 2026, RBI governor Sanjay Malhotra said the following:
- Retail inflation in Q4FY26 could be 3.2% (caused by mainly an unfavourable base effect)
- Retail inflation to be 4% in Q1FY27 period and 4.2% in the Q2FY27 period
- Real GDP growth for Q1FY27 could be 6.9% and that in Q2FY27 7%. This marked an upward revision compared to the GDP growth rate projection for Q1 and Q2 of the current financial year were projected at 6.7% and 6.8% respectively.
- Real GDP growth rate expected to be 7.4% in FY26.