RBI pegs FY26 GDP growth at 7.6%, FY27 at 6.9%
What's the story
The Reserve Bank of India (RBI) has raised its real GDP growth estimate for the previous fiscal year to 7.6% under a new GDP series, Governor Sanjay Malhotra announced. However, for the current fiscal year (FY27), the central bank has projected a slower growth rate of 6.9%. This indicates a moderation as external risks and cost pressures begin to build up.
Outlook revision
Q1FY27 and Q2FY27 GDP growth estimates slashed
The RBI has also revised its near-term outlook, lowering the Q1FY27 GDP growth estimate to 6.8% from an earlier prediction of 6.9%. The central bank has cut its estimate for Q2FY27 even more sharply, predicting a growth rate of 6.7%, down from the earlier projection of 7%. This revision comes amid emerging risks posed by global geopolitical disruptions and cost pressures.
Demand strength
Domestic demand supporting growth, says Malhotra
Despite the revised forecasts, Malhotra said India's macroeconomic fundamentals had "exuded confidence" before the escalation of the West Asia conflict. He attributed this to strong domestic demand supporting growth. The RBI also noted that high-frequency indicators until February showed continued strength in economic activity, driven by robust private consumption and investment demand.
Risk factors
Geopolitical risks could impact growth, warns MPC
However, Malhotra warned that "geopolitical conditions turned adverse in March" with the widening and intensification of the conflict. He added disruptions in the Strait of Hormuz could affect growth this year. The MPC flagged risks to both growth and inflation outlooks from the intensity and duration of the conflict, potential damage to energy infrastructure, as well as rising global energy prices.
Rate decision
MPC flags inflation concerns from rising global energy prices
The MPC kept the policy repo rate unchanged at 5.25% and maintained a neutral stance while reiterating its flexibility to respond to incoming data. Malhotra said a sharp rise in global energy prices and shortages of key inputs have "stoked inflation fears" and pushed up geopolitical risk premia in oil markets. He also warned elevated crude prices could lead to higher imported inflation and widen the current account deficit.