Our latest India Economic Monitor highlights an increasingly complex macroeconomic backdrop, shaped by heightened global uncertainty and emerging domestic risks.
The Global Backdrop
• Monetary tightening: Resilient growth, tight labour markets, and persistent inflation in the US and Japan are strengthening the case for monetary tightening by the US Fed and faster rate hikes by the Bank of Japan.
• Energy-price volatility: Renewed tensions in the Middle East are disrupting energy markets, increasing crude oil price volatility, and adding pressure on the external balances of energy-importing economies.
The Indian Context
• Current resilience: Economic activity remained broadly resilient in early FY27, supported by a pickup in industrial activity and continued strength in the services sector.
• Headwinds ahead: Forward-looking indicators point to potential moderation, while renewed geopolitical tensions, elevated commodity prices, and deficient rainfall continue to pose headwinds to the outlook.
Against this backdrop, we maintain our FY27 forecasts for real GDP growth at 6.7% and CPI inflation at 5.1%, with risks tilted to the downside for growth and the upside for inflation. We continue to expect 50–75 bps of cumulative policy repo rate hikes in H2 FY27, most likely beginning in October or December, although an earlier rate hike cannot be ruled out if geopolitical and inflationary pressures intensify materially.
