West Asia War, Oil And El Nino Risks Push RBI MPC To Raise FY27 Inflation Forecast To 5.1%

The RBI expects inflation to remain elevated through the year, with projections of 4.2 per cent in Q1, 5.1 per cent in Q2, 5.9 per cent in Q3 and 5.4 per cent in Q4.

CPI inflation stood at 3.4 per cent in March and 3.5 per cent in April, while core inflation remained stable at 3.7 per cent during both months.

Source : ABPLIVE AI

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Key points generated by AI, verified by newsroom

• RBI raises FY27 inflation outlook to 5.1% due to elevated crude.
• MPC keeps rates steady; West Asia conflict adds risk.
• Food inflation, monsoon uncertainty remain significant concerns.

The Reserve Bank of India on Friday sharply raised its inflation outlook for FY27, warning that elevated crude oil prices, supply-side pressures and the ongoing conflict in West Asia pose significant risks to the country's growth and price stability.

Announcing the Monetary Policy Committee's decision, RBI Governor Sanjay Malhotra said consumer price inflation (CPI) is now projected at 5.1 per cent for FY27, reflecting the impact of higher energy prices and growing global uncertainty.

Further, the MPC decided to maintain the status quo on repo rate and maintain its 'Neutral' stance on the economy.

The RBI expects inflation to remain elevated through the year, with projections of 4.2 per cent in Q1, 5.1 per cent in Q2, 5.9 per cent in Q3 and 5.4 per cent in Q4.

Why RBI Is More Worried About Inflation Now

The revised outlook comes despite headline retail inflation remaining below the central bank's target in recent months. CPI inflation stood at 3.4 per cent in March and 3.5 per cent in April, while core inflation remained stable at 3.7 per cent during both months.

However, the RBI said the inflation environment has deteriorated significantly since the last policy review.

Crude Oil Prices Near $110 Become A Major Risk

Governor Malhotra noted that crude oil prices have averaged around $110 per barrel over the past two months, substantially above the RBI's earlier assumption of $85 per barrel for the year.

The surge in energy costs has already begun feeding into broader price pressures. Higher fuel and input costs pushed wholesale price inflation above 8 per cent in April, signalling rising cost pressures across sectors.

"Elevated energy prices are being reflected in moderation in growth and rise in inflation," Malhotra said.

West Asia Conflict Adds To Global Economic Uncertainty

The Governor warned that the global economic outlook remains clouded by the ongoing war in West Asia and continued supply chain disruptions, which have increased uncertainty for policymakers worldwide.

According to Malhotra, major central banks have adopted a more cautious stance amid the changing environment, while heightened geopolitical tensions have triggered volatility across financial markets as investors seek safe-haven assets.

"The MPC will remain data-dependent and closely monitor developments, including supply-side pressures," he said.

Food Inflation Risks Remain On RBI's Radar

While domestic economic activity has largely remained steady, the RBI cautioned that there are now "considerable risks" to its baseline assessment of both inflation and growth.

The central bank also flagged uncertainty around food inflation, citing concerns over a potentially sub-normal monsoon and developing El Niño conditions, which could affect agricultural output in the coming months.