Iran War, High Energy Prices Bring Economic Uncertainty, RBI Reduces Growth Forecast For FY27

The Reserve Bank of India has reduced the GDP forecast for 2026-27 to 6.6% from its earlier estimate of 6.9%. In his monetary policy statement, the RBI Governor flagged the growing uncertainty caused by the conflict in West Asia. The central bank said the global economy is facing heightened uncertainty because of disruptions to trade routes, supply chains and energy markets. Governor Sanjay Malhotra noted that sharply higher energy prices and supply chain disruptions were beginning to affect economic activity across the world. "Global economic outlook remains clouded by the continuing geopolitical impasse in West Asia as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity," he said. The RBI also warned that uncertainty remains high because it is still unclear how long the conflict will continue and how severe its impact on global trade and energy markets could become. Apart from global developments, the RBI is also closely monitoring domestic risks. The central bank highlighted concerns over forecasts of a sub-normal southwest monsoon and the possibility of El Nino conditions. A weak monsoon could affect agricultural output and food prices, creating additional inflationary pressures.