RBI MPC: West Asia war expected to weigh heavily due to surging inflation 

Has India’s Goldilocks moment of high growth and low inflation passed as the war in West Asia rages on? There may be no easy answers for now as clear signals on when the conflict will end, but policy watchers, analysts and markets are closely awaiting the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) to get cues on growth and inflation expectations.

The six-member MPC headed by RBI Governor Sanjay Malhotra is set to meet next week from April 6 to 8 for the first bi-monthly policy review of the new fiscal year 2026-27. The meeting comes at a critical juncture when crude oil prices have surged to multi-year highs and exceeded $100 per barrel as the US-Israel and Iran war continues for over a month now.

“India’s total oil and gas import dependency is estimated to be around 4.2% of its GDP as of 2024. Of this, reliance on the Middle East is estimated at 2%,” CareEdge Ratings said in a recent report. 

The disruption in energy supplies and the price shocks have raised concerns over slowing growth and rising inflation in India, which remains highly dependent on energy imports. The average price of the Indian basket of crude oil in April has risen to $120.84 per barrel as per data from the PPAC.

While prices of petrol and diesel have been unchanged for now, the government has raised prices of cooking gas, and private fuel retailers have begun raising prices of petrol and diesel.

 The monsoons, another crucial factor for prices in the country, especially for the volatile food basket, could also be impacted and be weaker than usual with El Niño conditions seen to prevail.

Retail inflation rose to a 10-month high of 3.21% in February 2026 and is seen to rise further in March, data for which will be available later this month.

The government has meanwhile retained the 4% inflation target with a comfort band of 2%-6% for another five years until 2031, meaning that the RBI’s MPC will have to frame policies to meet this objective.

 “The recent oil price shock presents an upside risk to the inflation trajectory in the medium term, as higher energy costs are gradually transmitted into domestic prices, particularly in fuel-intensive sectors. While supply disruptions have added to cost pressures, selective price corrections in perishables, amid export-related dislocations, point to localised demand-supply imbalances,” said the Finance Ministry in its monthly economic review for March 2026. A sustained elevation in oil and gas prices could lead to broader second-round effects through input cost pass-through across sectors, it warned, but underlined that the government remains vigilant, with measures underway to ensure adequate domestic energy availability and mitigate potential inflationary pressures.

Economists believe that the West Asia conflict will bear heavily on the MPC this time. The RBI has previously projected retail inflation at 4% in the first quarter of the fiscal and 4.2% in the second quarter of FY27 from 3.2% in the fourth quarter of FY26, driven mainly by an adverse base effect.

Most private agencies have already begun to lower GDP growth forecasts for the fiscal year, and hike inflation estimates for FY27.

As per a baseline scenario for FY27, if the global crude oil prices average at $ 90 per barrel for the full year, we estimate India’s GDP growth to moderate to 6.7%, CareEdge Ratings said. India’s CPI inflation is projected to average between 4.5-4.7% in FY27, it said.

Madan Sabnavis, Chief Economist, Bank of Baroda, said the bank does not expect any change in repo rate or stance this time. “The tone will be cautious, and what will be eagerly awaited is the RBI's forecast of GDP and inflation under the prevailing uncertainty,” he noted.

In a previous note, Sabnavis had expected GDP growth to range between 7-7.2%, accounting for a 20-25bps impact owing to the Iran war. “Now, given the oil price shock, CPI can register an upside impact of around 50 basis points, and wholesale inflation can register about 100 basis points impact in FY27,” he said.

HSBC Global Investment in a note said that its inflation model suggests that if oil averages below $100 per barrel, inflation should remain within 6% even with a moderate El Niño. “But sustained oil above $ 100 barrel would push inflation beyond 6%, likely triggering rate hikes,” it said.