The six-member Monetary Policy Committee said growth, although resilient, is expected to be lower in the current financial year, while the outlook remains clouded by uncertainties around global trade policy, the West Asia conflict and weather-related shocks.
The RBI projected GDP growth at 7% in Q1, 6.4% in Q2, 6.5% in Q3 and 6.8% in Q4 of FY27, compared with its earlier projections of 6.6%, 6.3%, 6.5% and 6.8%, respectively. The risks to the growth outlook are evenly balanced.
ET OnlineRBI GDP growth forecast 2026
The RBI’s FY27 growth forecast is slightly more optimistic than the 6.6% median estimate in a recent Reuters poll of 42 economists, conducted between July 21 and 27. The economists had forecast growth to slow from 7.7% in FY26 to 6.6% in FY27, before edging up to 6.8% in FY28.
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RBI holds rates as oil inflation risks linger
The RBI’s decision to keep the repo rate at 5.25% was broadly in line with expectations, with economists saying the central bank had limited reason to change rates given the lack of widespread inflationary pressures so far.
The MPC also retained its neutral stance, with the central bank signalling that greater clarity on the path and composition of inflation is needed before taking further policy action.
ICRA chief economist Aditi Nayar said the August status quo on both the policy rate and stance was a “foregone conclusion”, given limited evidence of inflationary pressures broadening across the economy.
She said the RBI’s growth and inflation forecasts were appropriate for an average crude oil price of $80-$85 a barrel and a moderate rainfall deficit, while the relatively neutral tone of the policy did not suggest that a rate hike was imminent.
Rate hike bets hinge on oil, food inflation
The RBI’s wait-and-watch approach comes as higher crude prices and food inflation remain key risks to the outlook.
HDFC Bank principal economist Sakshi Gupta said the possibility of a rate hike in the third quarter of FY27 remains low, with the RBI setting a high bar for any reversal in the interest-rate cycle.
A rate increase would likely require evidence of widespread second-round inflationary pressures beyond temporary spikes in oil and food prices, Gupta said.
Kotak Mahindra Bank chief economist Upasna Bhardwaj, however, said the bank continues to see scope for 50 basis points of rate hikes in the second half of FY27, depending on how inflation and growth evolve.
360 ONE Asset senior economist Vikram Chhabra said the RBI could keep rates unchanged for an extended period if geopolitical conditions stabilise and the monsoon remains close to normal.
However, sustained high crude prices combined with a weak monsoon and higher food inflation could force the RBI to raise rates by the end of FY27, he said.
RBI raises GDP forecast as Q1 activity beats expectations
The RBI raised its FY27 growth forecast by 10 basis points after assessing that domestic economic activity had remained resilient despite persistent global uncertainty.
High-frequency indicators available for Q1 showed stronger activity, while early corporate results indicated healthy performance in manufacturing.
Services activity continued to expand, supported by strong domestic demand, while private consumption was driven by buoyant discretionary spending.
Investment activity remained steady on the back of robust government spending on infrastructure and construction. Merchandise exports rebounded with double-digit growth, while services exports sustained their momentum.
“Overall, the Indian economy performed better than expected in Q1,” Governor Sanjay Malhotra said.
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The first-quarter GDP data, due later this month, will provide the next major test of India’s economic momentum and offer a more detailed reading of the performance that prompted the RBI to raise its FY27 forecast.
Weak investment, oil shock weigh on growth outlook
The RBI’s upgraded forecast comes even as economists remain concerned about the durability of India’s growth momentum.
The recent Reuters poll showed economists expect growth to slow sharply from the 7.7% expansion recorded in FY26, with weak private investment and higher oil prices weighing on domestic demand.
Companies remain cautious about committing to large capital expenditure plans despite strong balance sheets, economists said, amid uncertainty over the durability of domestic demand.
Societe Generale India economist Kunal Kundu had warned that headline GDP growth could overstate the underlying strength of the economy, with investment and inventory accumulation potentially flattering the headline numbers.
Morgan Stanley chief India economist Upasana Chachra had also said weaker global growth, slower trade or softer domestic consumption and investment could reduce the incentive for companies to undertake fresh capacity expansion.
West Asia conflict keeps growth risks elevated
Supply-side pressures caused by the West Asia conflict eased somewhat since June, allowing the government to withdraw temporary measures and key input supplies to normalise, the RBI said.
However, the re-escalation of the conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty around global supply chains.
The RBI said renewed tensions in West Asia, disruptions to global supply chains, volatility in international financial markets and weather-related shocks pose downside risks to growth.
Emkay Global Financial Services chief economist Madhavi Arora described the policy tone as cautious but constructive, balancing uncertainties from the Middle East conflict, tighter global financial conditions and El Nino risks against resilient domestic growth and robust FCNR inflows.
Inflation outlook keeps RBI in wait-and-watch mode
The MPC said headline inflation is projected to increase, primarily due to supply-side pressures from food and fuel.
Core inflation, however, continues to remain moderate and is expected to decline after peaking in Q3.
DBS Bank senior economist Radhika Rao said the RBI had signalled patience rather than complacency by remaining on hold, retaining flexibility while assessing whether current inflation pressures remain temporary or develop into a broader inflation cycle.
Muthoot FinCorp chief economist Apoorva Javdekar said the wait-and-watch approach was appropriate given uncertainty around oil prices. Easing war risks, a recovering monsoon, adequate food buffers and inflation remaining within the target band allowed the RBI to hold rates for now, she said.
Monsoon poses fresh risk to rural demand
The outlook for agriculture remains clouded by deficient and uneven southwest monsoon rainfall amid El Nino conditions.
However, reservoir levels remain close to normal, providing some buffer, while government initiatives around crop diversification, climate-resilient and short-duration crops, and water harvesting and conservation are expected to mitigate the impact of deficient rainfall.
The RBI expects any impact on rural consumption from a weak monsoon to be partly offset by allied-sector activity and government schemes.
Javdekar said rural growth impulses were already slowing and could face further pressure given reduced fiscal capacity, making a rate hike at this stage premature and potentially costly.
Services, infrastructure to support investment
The services sector is expected to maintain its buoyancy on the back of strong domestic demand, while steady employment conditions should support urban consumption.
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Strong capacity utilisation, robust credit flows and the government’s continued thrust on infrastructure are expected to sustain investment activity.
Net external demand is also expected to derive strength from bilateral trade agreements that have recently been concluded, some of which are now being operationalised, as well as manufacturers’ efforts to diversify export markets.
RBI’s neutral stance keeps policy options open
The RBI’s decision to remain on hold leaves policymakers with room to respond as more data emerge on oil prices, inflation, the monsoon and domestic demand.
While economists broadly see little chance of an immediate rate hike, expectations for the second half of FY27 are more divided. The key trigger will be whether the current food and fuel pressures remain temporary or begin feeding into broader inflation.
For now, the RBI’s upgraded growth forecast and neutral stance point to an economy that is holding up better than feared, but with policymakers unwilling to declare victory on inflation while geopolitical and energy risks remain fluid.
For the real estate sector, Knight Frank India chairman and managing director Shishir Baijal said policy continuity should support housing demand and investment activity across residential and commercial segments.