The Middle East conflict has entered its ninth week, with no durable resolution in sight. The ceasefire has been extended on an open-ended basis, but commercial traffic through the Strait of Hormuz remains effectively at a standstill and crude oil prices remain elevated. Even if a provisional peace agreement is reached in the coming weeks, full normalisation of energy and trade flows is likely to take several months.

High-frequency data point to early signs of impact on India’s economic activity, albeit with some pockets of resilience. With normalisation of energy and trade routes likely to be gradual and extend well into Q2 FY27, we revise our FY27 India’s real GDP growth projection down by 0.3 percentage points to 6.7% (vs. forecast of ~7.4% in FY26) and raise CPI inflation forecast by 0.4 percentage points to 4.7% (vs. ~2.1% in FY26). Downside risks to economic growth and upside risks to inflation persist.

In its April meeting, the RBI held the policy repo rate at 5.25% with a neutral stance, adopting a wait-and-watch approach. We expect the hold to continue through FY27; however, a further delay in conflict resolution, renewed escalation, or a larger-than-expected monsoon shortfall could bring monetary policy tightening into consideration toward the end of FY27.