RBI Bulletin 2026: West Asia conflict risks for India

Why the April RBI bulletin is sounding cautious

The Reserve Bank of India’s April bulletin flagged fresh risks from the ongoing West Asia conflict, which has continued for nearly two months. The central bank’s message was that supply disruptions can travel beyond freight delays and higher commodity prices. It said the shock could raise input costs, disrupt trade flows, and create spillovers into financial markets. While the bulletin pointed to resilience in parts of domestic activity, it also noted early signs of moderation in select indicators. The RBI framed the situation as uncertain, with outcomes dependent on how long the conflict persists and how quickly supply chains normalise. A temporary two-week ceasefire between the US and Iran was described as providing some near-term relief, although conditions remained fluid. The bulletin’s overall tone balanced steady demand conditions with rising external and weather-related risks.

Supply shocks may not stay limited to costs

The bulletin highlighted that supply-side shocks may not remain limited to production costs. It warned about the possibility of disruptions feeding into demand conditions over time. This matters because a supply shock can start affecting consumption and investment if higher costs compress purchasing power or reduce profitability. The RBI described these as “second-round effects” that need continued monitoring. The emphasis was on uncertainty around the duration of the conflict and the time it may take to restore logistics networks. In the RBI’s assessment, these second-round effects are a key risk channel for monetary policy and macro stability. The central bank indicated that vigilance is required to ensure inflation expectations do not become unanchored.

Inflation outlook: within band, but risks tilted up

The bulletin said inflation remains within the tolerance band, but the balance of risks has tilted upwards. It attributed part of the pressure to supply constraints and weather-related factors. Measures taken to manage supply bottlenecks were noted as having helped contain price levels so far. Even so, the RBI linked the inflation trajectory to global developments and domestic conditions, especially commodity prices and supply availability. The governor’s broader assessment also underlined that elevated crude oil prices can increase imported inflation and affect the external balance. The RBI’s approach, as reflected across the bulletin and policy communication, was to focus on preventing second-round effects rather than reacting mechanically to a supply shock.

Economic activity: resilience with pockets of slowing

Recent data cited in the bulletin showed mixed trends across sectors. Demand conditions were described as stable, but some indicators suggested a moderation in activity. Port cargo volumes and air passenger traffic showed early signs of slowing. The index of eight core industries fell to a 19-month low, driven by lower output in fertilisers, crude oil, coal, and electricity. At the same time, the bulletin and accompanying commentary pointed to resilience in “many segments” of the economy. Rural demand was cited as an important support for overall resilience in March. Automobile sales growth was described as being driven by strong retail demand, with increased electric vehicle demand, particularly in the two-wheeler segment, contributing to momentum.

PMI indicators: expansion continues, but at a slower pace

Survey-based indicators also pointed to slower growth. The manufacturing PMI stayed in expansion territory but declined to its lowest level in nearly four years. The bulletin noted that growth in new orders and output eased to levels last seen in mid-2022. Services activity continued to expand, but at a slower pace. The services PMI eased to a 14-month low amid softer demand for new business. Together, these signals suggested that while activity remained positive, the pace was moderating. The RBI’s framing was consistent with an economy that is holding up, but becoming more sensitive to external shocks and cost pressures.

Trade and logistics: Gulf routes and a March hit to flows

The RBI noted that the conflict impacted trade negatively, given India’s dependence on Gulf shipping routes. It reported an average 54% decline in exports and imports from West Asia in March. Imports from Russia saw a sequential uptick. The bulletin also pointed to the risk that higher logistical costs and disrupted trade flows could transmit into broader conditions, especially if disruptions persist. Separately, the RBI governor’s assessment discussed how turmoil around the Strait of Hormuz can affect energy supply and shipping, with implications for costs and external demand. In the same context, the RBI noted that a slowdown in imports and an expansion in exports narrowed the trade deficit to a nine-month low in March.

Rupee moves, reserves cushion, and market conditions

Currency and financial channels were highlighted as part of the spillover risk. The rupee depreciated by more than 4% in March before recovering in early April, helped by policy measures and easing geopolitical tensions. It later weakened again over recent sessions, reflecting renewed risk sensitivity. The RBI said foreign exchange reserves remained at comfortable levels, covering around 11 months of imports and about 92% of external debt as of end-December 2025. Market conditions were also described as responding to geopolitical developments. Money market and bond yields moderated after the temporary ceasefire in West Asia, according to the bulletin-linked commentary. The RBI also noted that foreign portfolio investment flows remained volatile, while net foreign direct investment turned positive in February.

MPC decision: status quo on repo rate amid uncertainty

The Monetary Policy Committee kept the benchmark repo rate unchanged at 5.25% on April 8 and retained a neutral stance. The minutes indicated that heightened uncertainty from the West Asia conflict influenced the unanimous decision. RBI Governor Sanjay Malhotra said the conflict poses challenges through multiple channels, including exports, supply of critical commodities, elevated energy and other commodity prices, remittances, uncertainty, and subdued global demand. The RBI characterised the episode as a supply shock, with underlying inflation pressures, excluding the shock, described as contained. Officials also noted that monetary policy cannot influence energy prices directly, but can help prevent persistent inflation by shaping expectations and enabling a smoother adjustment.

Key figures cited by RBI and policy communication

Growth and inflation projections flagged in the same narrative

The RBI projected real GDP growth at 6.9% for 2026-27, with downside risks increasing as the conflict persists. One MPC member assessed that the growth forecast was lower by 50-60 basis points “as of now” due to the West Asia conflict. The RBI’s inflation projection for 2026-27 was cited at 4.6%, with risks tilted to the upside. These projections were presented alongside the RBI’s view that India’s macroeconomic fundamentals provide resilience compared with past episodes of external stress. The central bank’s guidance emphasised monitoring energy prices, shipping disruptions, and signs that a supply shock is turning into a demand shock.

Conclusion: steady demand, but external risks remain in focus

The RBI’s April bulletin indicated that supply disruptions, external uncertainties, and weather conditions may continue to influence economic activity in the near term, even as demand conditions remain steady. It highlighted the risk that extended disruptions could push up costs, weaken trade flows, and create second-round effects on demand and inflation. The central bank has kept monetary policy unchanged for now, signalling a wait-and-watch approach as the conflict evolves. Markets and businesses are likely to track crude and gas conditions, shipping and insurance costs, currency moves, and the persistence of supply bottlenecks. The RBI’s next steps will be guided by incoming data and the evolving growth-inflation balance under elevated geopolitical uncertainty.