RBI Policy provides a practical picture of the road ahead amid West Asia war: Business Standard 8th April 2026

 The RBI policy comes at a time when there is uncertainty on the impact of the war on the economy. However, quite significantly, just before the policy was announced, a ceasefire was struck by the United States (US) with Iran for a fortnight. While it is still uncertain if the ceasefire will mean the end of the war soon, the RBI’s statement provides an official view of how one could look at the next 12 months.

 

The RBI was not expected to touch the repo rate, and a status quo seemed most appropriate under these conditions. The stance, too, has remained unchanged at 'neutral', which is significant because if there was a change indicating future rate action, it could have been interpreted as being hawkish. The tone is nonetheless cautious, which is the right approach given the uncertainty.

There are some signs that the war may have impacted the economy, though it is to early to tell as any data for March pertains to the year gone by that could raise red flags for the current fiscal 2026-27 (FY27). The purchasing manager's indexes (PMIs) look less impressive than in February though well above the level of 50. Goods and services tax (GST) collections were steady in March, but shortage of fuels has led to several units in the hospitality business at the micro level closing down. Petro-based industries are still nervous of their fuel supplies, which will have a bearing on performance in Q1. Air fares have gone up and several companies have announced an increase in their prices. 

Against this background (which is very early), the RBI forecasts of gross domestic product (GDP) and inflation can be seen. GDP growth for the year has been projected at 6.9 per cent with a downward bias which will be lower than that last year. Significantly growth in Q1 will be low at 6.9  per cent, followed by three sub-7 per cent growth rates that should capture the war disruption impact. 

Inflation, on the other hand, is projected to be 4.6 per cent this year. It does look like that while the war impact has been buffered in to a certain extent. The possible El Nino impact this year, though acknowledged, may not have been part of the forecasts. This is understandable as it is a theoretical possibility only today.

External account

 

The RBI does sound cautious on the external account as this will be the first point of impact. Exports are to get pressurized with the ongoing challenges on the sea routes. Imports shock is more severe as it involves both physical supplies as well as higher prices being paid for these products. 

 

While commenting on the rupee, no specific measure has been announced. This has been the practice where there is intervention whenever required and forex management is seldom a part of the policy. The same holds for liquidity where there is an implicit assurance of supplies as and when required. This is important because any intervention of the RBI in the forex market will mean withdrawal of liquidity, which is then replenished by the central bank. 

he market reaction has been largely unchanged from the time of announcement of the policy, though all the three markets started off better post the ceasefire announcement- stocks, bonds and currency (helped by unwinding of forwards positions too).  

 

Rate cuts can now be ruled out and the question will be more on when there can be a rate hike. A clearer picture will emerge over the next few months. The August policy will have more complete data points when contemplating rate action.