Minutes from the Reserve Bank of India’s April 2026 Monetary Policy Committee meeting, released Wednesday, depict a central bank adopting a cautious posture in the face of uncertain global developments stemming from the Middle East conflict. Policymakers identified the conflict as a material supply shock, creating upward risks to inflation alongside downside risks to economic growth.
Goldman Sachs reiterated its outlook of two 25 basis point repo rate increases this year, which would raise the policy rate to 5.75% by the end of 2026. The investment bank said risks to that forecast are skewed toward hikes that are back-loaded.
Governor Malhotra described the international disruption as a supply shock that is filtering into the domestic economy through several channels, while noting that underlying inflationary pressures remain contained. He signaled that risks to the RBI’s real GDP growth projection are tilted to the downside, and that headline inflation faces upside pressures from rising global energy costs and the possibility of El Niño conditions.
The Governor also pointed to the announcement of a temporary ceasefire as a factor that could enable an early resolution of the conflict and a normalization of supply chains. That prospect, he said, supports a wait-and-watch approach. In the April decision, he voted to hold the policy rate at 5.25% and to retain the neutral stance.
Deputy Governor Gupta emphasized that measures of inflation excluding food, fuel and precious metals remain contained. She attributed much of the projected rise in headline inflation to base effects and higher oil prices rather than broad-based domestic price pressures. Gupta expressed a constructive view on growth prospects, arguing that robust investment rates and improved capacity utilization provide a foundation for strong economic activity.
Executive Director Bhattacharyya argued that supply-driven inflation requires a different policy response from demand-driven inflation, stating that monetary policy has limited capacity to directly counteract the immediate effects of a supply-induced price shock.
External member Bhattacharya observed that the trade-off between growth and inflation has worsened markedly since the onset of the Middle East conflict. He highlighted survey data showing three-month ahead household inflation expectations rose by 60 basis points in the March 2026 RBI survey.
Goldman Sachs noted that MPC members are likely to wait for clear evidence that higher energy and petroleum product prices are feeding into core inflation measures before implementing any monetary tightening. That waiting-for-pass-through approach underpins the caution reflected across the policy discussion.
Key takeaways
- RBI minutes show a cautious stance as the Middle East conflict is viewed as a supply shock raising inflation risks and weighing on growth.
- Goldman Sachs forecasts two 25 basis point repo rate hikes in 2026, bringing the repo to 5.75% by year-end, with a bias toward back-loaded moves.
- MPC members stressed the need to see pass-through of higher energy prices into core inflation before acting, reflecting differing views on the appropriate policy response to supply-driven inflation.
Impacted sectors: Energy (oil and petroleum), financials and broader credit markets, manufacturing and logistics tied to supply chains.
Risks and uncertainties
- Escalation of the Middle East conflict could intensify the supply shock, putting further upward pressure on headline inflation - primarily affecting energy-sensitive sectors and consumer prices.
- Downside risks to real GDP growth due to disrupted supply chains and higher input costs, with potential consequences for industrial production and investment-heavy sectors.
- Uncertainty over the passthrough of energy and petroleum product price increases into core inflation measures - a key determinant of the timing and magnitude of any RBI policy response.