The Reserve Bank of India (RBI) has revised its economic outlook for FY27, reducing its GDP growth forecast by 30 basis points to 6.6% and raising its inflation projection by 50 basis points to 5.1%, citing the potential impact of the ongoing conflict in West Asia on the domestic economy.

The revised estimates were announced by RBI Governor Sanjay Malhotra following the Monetary Policy Committee (MPC) meeting on June 5. The changes mark a significant shift from the central bank's April policy review, when it had upgraded its growth forecast to 6.9% and lowered its inflation estimate to 4.6% based on expectations of strong domestic demand and moderating price pressures.

According to the RBI, the escalation of geopolitical tensions in West Asia has increased risks to global energy markets and supply chains, leading policymakers to reassess the economic outlook. Rising crude oil prices and disruptions to international trade routes are expected to increase input costs across sectors and exert upward pressure on inflation.

Despite the revised projections, the MPC decided to keep the repo rate unchanged at 5.25% and retained its neutral policy stance. The decision indicates that policymakers currently view the inflationary pressures as largely supply-driven rather than a result of excessive domestic demand.

The RBI noted that India's economy continues to be supported by healthy private consumption, government capital expenditure, and sustained credit growth. Manufacturing and services activity remain in expansion territory, while investment activity and exports have shown resilience despite a challenging global environment.

However, the central bank cautioned that prolonged geopolitical tensions and elevated energy prices could weigh on corporate profitability, increase production costs, and delay investment decisions. These factors may gradually moderate growth momentum while keeping inflationary pressures elevated over the coming quarters.

The latest projections suggest that policymakers are preparing for a period of slower economic growth coupled with higher inflation, although the RBI believes domestic demand conditions remain sufficiently strong to support economic activity. The central bank will continue to monitor global developments and their impact on inflation and growth before considering any future policy adjustments.