RBI decided to hold rates as West Asia conflict stoked inflation, growth concerns: MPC minutes

Uncertainty arising from the West Asia war and its potential impact on inflation and economic growth weighed heavily on the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) as it decided to keep interest rates unchanged earlier this month, according to minutes of the meeting released on Thursday. 

At the conclusion of its three-day policy meeting, the RBI on April 8 left the benchmark repo rate unchanged at 5.25% and maintained a cautious wait-and-watch approach as policymakers assessed the fallout of the Iran conflict on energy supplies, inflation, and growth. 

The six-member panel, chaired by RBI Governor Sanjay Malhotra, unanimously voted to retain the policy rate, citing rising uncertainty after the West Asia conflict pushed crude prices sharply higher, weakened the rupee, and disrupted trade flows. The central bank also retained its policy stance at “neutral”. 

Malhotra said the conflict poses risks to the Indian economy through multiple channels, including exports, supply of critical commodities, elevated energy and commodity prices, remittances, uncertainty, and weaker global demand. 

“Overall, geopolitical uncertainties have intensified, with the conflict widening over the last month,” he said. He warned that prolonged supply-chain disruptions could create downside risks to growth and upside risks to inflation. 

“As for monetary policy, this represents a supply shock. The underlying inflation pressures, minus the shock, are contained,” Malhotra said. “If the conflict remains unresolved for a long duration, it can make the task of central banks arduous in their endeavour to rein in inflation expectations while minimising growth sacrifice.” 

RBI Deputy Governor and MPC member Poonam Gupta said central banks must continue to play a supportive role in meeting the productive requirements of the economy. “Constant vigil is warranted while waiting to ascertain the persistence of the supply shock, if any,” she said. 

RBI Executive Director Indranil Bhattacharyya said the global economic outlook, which had appeared buoyant until the February MPC meeting, deteriorated mainly after the outbreak of the West Asia war. 

Disruptions in logistics networks triggered rise in global energy prices

He said disruptions in logistics networks had triggered a sharp rise in international energy prices and choked global trade flows, particularly through the Strait of Hormuz, which accounts for about half of India’s energy imports. 

Of the six MPC members, three are RBI officials and three are government-appointed external members — Nagesh Kumar, Saugata Bhattacharya, and Ram Singh. 

According to the minutes, Kumar said the April 2026 meeting was taking place against the backdrop of the West Asia conflict, which had clouded the global economic outlook and created significant spillovers for India’s growth prospects in 2026-27. 

He noted that at the time of the February meeting, India’s outlook had improved following the conclusion of EU-India FTA negotiations, the rollback of high US tariffs on exports, and supportive measures in the Union Budget 2026-27 while inflation remained benign. 

“In the current highly uncertain economic environment, prudence requires a status quo on monetary policy action,” Kumar said. 

Saugata Bhattacharya said that despite tentative signs of easing hostilities in West Asia and some relief in global financial conditions, uncertainty over prolonged supply-chain disruptions remained elevated. 

“Monetary policy cannot influence energy prices but can facilitate the process of economic adjustment in a way that sustainably achieves inflation targets,” he said. “For me, the risks of a policy mistake have heightened amidst this uncertainty. Arguments for increasing the policy rate in anticipation of higher inflation are as risky as cutting rates in response to fears of lower growth.” 

Ram Singh said turmoil in the Strait of Hormuz had directly weighed on growth through oil supply disruptions and weaker demand, while shipping disruptions had hurt global and Indian export prospects. 

The central bank projected India’s real GDP growth for 2026-27 at 6.9%, with quarterly estimates of 6.8% in Q1, 6.7% in Q2, 7.0% in Q3, and 7.2% in Q4.