The Reserve Bank of India has cautioned that the ongoing conflict between the US and Iran could negatively impact India’s economic growth and push inflation higher in the coming financial year.

According to the minutes of the central bank’s Monetary Policy Committee (MPC) meeting released on Wednesday, rising energy costs and supply disruptions pose a significant risk to economic stability.

Energy Prices And Freight Costs Seen As Key Risks

The RBI warned that higher input costs driven by rising energy prices, freight charges and insurance costs could affect the availability of essential raw materials.

These pressures could:

• Disrupt supply chains
• Increase production costs
• Limit availability of key industrial inputs
• Slow down growth in downstream sectors

The central bank also noted that supply shocks linked to disruptions in the Strait of Hormuz could weigh on domestic production during FY 2026–27.

Given the uncertainty surrounding global conditions, the RBI indicated that a “wait-and-watch” approach would be prudent before taking major policy actions.

El Niño Poses Additional Risk To Growth And Inflation

Apart from geopolitical tensions, the RBI highlighted concerns about the potential impact of El Niño on India’s economy.

MPC member Ram Singh warned that weather-related disruptions linked to El Niño could create:

• Downside risks to economic growth
• Upside risks to inflation

El Niño typically occurs every two to seven years and is associated with warmer-than-average sea surface temperatures in the central and eastern Pacific Ocean.

In India, this phenomenon often weakens the Southwest Monsoon, reducing rainfall between June and September and affecting agriculture — one of the most rainfall-dependent sectors of the economy.

Inflation Outlook Revised Upward To 4.6%

Taking into account global tensions and climate risks, the RBI has revised its consumer price index (CPI)-based inflation forecast upward to 4.6% for FY27.

Despite these challenges, the central bank maintained a cautiously optimistic outlook on India’s overall growth trajectory, noting that the extent of economic impact will depend on how long geopolitical tensions and climate disruptions persist.

Global Conflict Affecting Indian Economy Through Multiple Channels

The conflict in West Asia has affected India’s economy through several key channels, including:

• Rising crude oil prices
• Higher logistics and shipping costs
• Disruptions to global trade routes
• Increased commodity price volatility

These factors collectively contribute to inflationary pressures and could slow industrial output if supply disruptions continue.

RBI Keeps Interest Rates Unchanged

Earlier this month, on April 8, the RBI decided to keep key policy rates unchanged while maintaining a neutral stance.

The MPC unanimously voted to retain:

• Repo Rate: 5.25%
• Standing Deposit Facility (SDF) Rate: 5%
• Marginal Standing Facility (MSF) Rate: 5.5%

The central bank reaffirmed confidence in India’s growth momentum but acknowledged rising global risks to inflation, liquidity and financial stability.

What This Means For India

The RBI’s latest assessment highlights that India faces dual risks — geopolitical uncertainty and climate-related disruptions.

Key areas likely to be affected include:

• Agriculture (due to weak monsoon risk)
• Manufacturing (due to higher input costs)
• Transport and logistics (due to shipping disruptions)
• Consumer prices (due to inflationary pressures)

The central bank stressed that while the direction of these risks is clear, their long-term impact will depend largely on how persistent the geopolitical conflict and El Niño conditions remain.