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RBI to Pause Rates as US-Iran Conflict Threatens Growth, Inflation

The Reserve Bank of India is expected to maintain the policy repo rate unchanged at 5.25% in its April 2026 meeting, according to a Bank of Baroda report. The ongoing US-Iran conflict has disrupted energy supplies, pushing oil prices above $100 a barrel and creating volatility in financial markets. This geopolitical tension is likely to impact India's growth and inflation, prompting the RBI to potentially revise its GDP and inflation forecasts for FY27. The central bank may announce targeted measures to support liquidity and the rupee while maintaining a neutral policy stance.

Key Points: RBI Rate Pause Likely Amid US-Iran War Impact on Economy

  • RBI likely to hold repo rate at 5.25%
  • US-Iran conflict pushes oil above $100/barrel
  • War pressures growth, inflation, and rupee
  • Rate hike possible if inflation breaches 6%
  • Current account deficit expected to widen
2 min read

RBI likely to pause repo rate as US-Iran weighs on growth, inflation: Report

RBI expected to hold repo rate at 5.25% in April 2026 as Middle East conflict pressures oil prices, growth, and inflation, a BoB report says.

"Impact of war on growth and inflation will become clearer in the next 3-4 months. RBI is likely to then take a call on the direction of its rate trajectory. - Bank of Baroda Report"

New Delhi, April 2

The Middle East conflict and elevated oil prices will likely lead to the Reserve Bank of India maintaining the policy repo rate unchanged at 5.25 per cent in its April 2026 MPC meeting, a report said on Thursday.

The report from Bank of Baroda predicted that the economic landscape has reached the end of the rate cut cycle, and RBI will now remain on a prolonged pause. The central bank will likely maintain a neutral stance and remain vigilant about the evolving situation, it said, adding that targeted measures may be announced to support liquidity and the rupee.

If inflation breaches the upper tolerance band of 6 per cent, the bank said there could be a rate hike towards the end of the year.

"Impact of war on growth and inflation will become clearer in the next 3-4 months. RBI is likely to then take a call on the direction of its rate trajectory," the report said.

Since the last policy meeting, the US‑Iran conflict has disrupted energy supplies with the Strait of Hormuz closed, pushing oil prices above $100 per barrel.

Markets also remained highly volatile and the war has pressurised FPI outflows from India, bond yields and INR to touch record low at 94.83 per USD.

"The impact of war will be felt on global growth and inflation. India is also likely to get impacted and thus RBI may re-work its GDP and inflation forecasts for FY27," the report said.

In the latest monthly economic bulletin released, CEA has cautioned that the current account deficit too will widen significantly in FY27. The bank projected FY26 GDP growth at 7.6 per cent and FY27 growth to range between 7-7.2 per cent. The bank also cautioned that the current account deficit is likely to widen.

- IANS

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Reader Comments

R
Rohit P
So the repo rate stays at 5.25%. Good for my home loan EMI for now, but if inflation crosses 6%, we might see a hike later. Feeling the pinch of petrol prices already. RBI needs to act before things get worse for the common man.
A
Aditya G
The widening current account deficit is a serious concern. While the growth projections for FY26/27 look strong on paper, external shocks like this conflict can derail everything. RBI's vigilance is crucial, but we also need long-term energy security strategies.
S
Sarah B
Interesting analysis. The interconnectedness of global events is stark. A conflict far away closes a strait, oil prices jump, and it affects inflation and growth forecasts in India. Makes you realize how fragile economic stability can be.
K
Karthik V
With FPI outflows and the rupee under pressure, the pause makes sense. But I respectfully think the RBI should be more proactive with liquidity measures now rather than waiting. A weak rupee makes imports costlier, feeding into inflation. The time for targeted action is now.
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Meera T
It's always the common person who suffers the most. First petrol prices go up, then everything else becomes expensive. I hope the government and RBI work together to shield us from the worst of this global storm. Jai Hind.

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