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Informist, Wednesday, Apr. 22, 2026

 

By Aaryan Khanna

 

NEW DELHI – The minutes of the Monetary Policy Committee's April meeting showed none of the six members was inclined to take swift action on rates or monetary policy amid a rise in inflation likely following the war in West Asia. The Reserve Bank of India's rate-setting panel had met on Apr. 6-8 and maintained a status quo on the rates and stance. The minutes of the meeting were released Wednesday.

 

The MPC statement had termed the event a supply shock and most of the members, both external and from the RBI, used that term to describe the impact of the war in the minutes. The US and Israel attacked Iran on Feb. 28, leading to the closure of the Strait of Hormuz and oil supplies transiting the key waterway to come to a standstill. India's crude oil basket price has risen to $116 a barrel in April, from $113 a barrel in March and up sharply from less than $70 a barrel in February. 

 

India's CPI inflation in financial year 2026-27 (Apr-Mar) is projected to rise to 4.6%, according to central bank estimates, after averaging just 2.1% in FY26. External member Nagesh Kumar termed the rise as clearly induced by supply rather than pushed by demand. Reserve Bank of India Deputy Governor in-change of monetary policy Poonam Gupta highlighted that the projection was based both on the statistical effect of a low base and due to a rise in crude oil prices. The central bank's Executive Director Indranil Bhattacharyya said monetary policy had limited ability to contain the direct effects of a supply-induced inflation shock and is only useful in curbing price rise expectations, preventing second-order effects. 

 

"As long as (inflation) expectations remain anchored, looking through the shock is optimal since any pre-emptive response merely sacrifices output without delivering any significant gain on the inflation front," Bhattacharya said. "Therefore, it is prudent to wait for more incoming information before taking any definitive course of action."

 

Members were abundantly cautious as they waited for further data and the impact of the conflict to play out on the global and Indian economies. After over a month of outright war, the US and Iran have agreed to a precarious ceasefire in effect since Apr. 8, announced just hours before the MPC's rate decision was announced. The ceasefire remains in effect after its initial two-week timeline has ended and there is uncertainty about whether the armed conflict will flare up again in the absence of a lasting peace deal.

 

External member Ram Singh said with the shift out of the Goldilocks phase, the Indian economy may move to higher-than-target inflation and lower growth, the opposite scenario. In such circumstances, he said there was a case for "dovish pause" as the economy's output gap would become wider. He especially batted for micro-, small- and medium-enterprises benefiting from a "dovish pause", along with fiscal measures of support. Several members, including RBI Governor Sanjay Malhotra, highlighted that underlying inflationary pressures were well-contained. 

 

"A swift resolution, combined with fiscal and administrative measures to limit the passthrough of petroleum product prices, can see inflation pressures subside to quickly manageable levels," Singh said.

 

India's period of high growth and low inflation showed that the economy expanded on the back of improved fundamentals, RBI's Gupta said in her minutes. Most members agreed that underlying indicators of domestic demand, including public- and private-sector consumption and investment, remained robust, with little immediate impact of the war.

 

"For me, the risks of a policy mistake have heightened amidst this uncertainty," external member Saugata Bhattacharya said. "Arguments for increasing the policy rate in anticipation of higher inflation are as risky as cutting rates in response to a fear of lower growth."

 

While the commentary was focused on gauging the impact of the West Asia war, members also highlighted the risk to India's GDP and inflation dynamics from the El Nino phenomenon expected later this year. The India Meteorological Department sees a 62% chance of the Pacific Ocean weather phenomenon emerging in Jul-Aug, which is associated with weaker southwest monsoon in India. External member Bhattacharya said this may add to the ongoing supply shocks. 

 

"As a result, supply chain disruptions, that may take longer to subside fully and restore the logistics network, pose downside risks to growth and upside risks to inflation," RBI Governor Sanjay Malhotra said in his minutes. "Nevertheless, the Indian economy is on a much stronger footing at the current juncture than at any time before to withstand these shocks." 

 

EXTERNAL SECTOR

Outside of their immediate policy remit on growth and inflation deciding the repo rate, some members also spoke about the risks to the external sector. Singh acknowledged that his recommendation of "dovish pause" would not help the rupee, which depreciated over 4% in March despite explicit and implicit support from the RBI. The external member said the RBI had measures other than monetary policy to deal with the current account deficit and rupee weakness. 

 

Kumar echoed others' view, including the RBI governor's, that the current account deficit was likely to be higher in FY27 against FY26. The International Monetary Fund has pegged India's current account gap to widen to 2.0% of GDP in the current fiscal from 0.9% last year. He termed a deficit of 1.5% of GDP as a comfortable range. In addition to the slowdown in import of crude oil, petroleum products and fertilisers from the Strait of Hormuz, India's economy is also vulnerable when it comes to exports, supply of critical commodities, potentially smaller remittances and low global demand, among others, Malhotra said.

 

"I feel that under the circumstances, central banks need to continue to play a conducive role in supporting the productive requirements of the economy," Gupta said. "Constant vigil is warranted while waiting to ascertain the persistence of the supply shock, if any."   End

 

US$1 = INR 93.80

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

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