India’s Reserve Bank held its benchmark repo rate unchanged at 5.25 percent on Thursday while lowering its forecast for economic growth in the financial year ending March 2027. Governor Sanjay Malhotra said the bank’s Monetary Policy Committee now projects GDP growth of 6.6 percent for FY27, down from the 6.9 percent estimate issued in April, attributing the downgrade primarily to surging energy costs from the Iran-US conflict.

India imports roughly 85 percent of its oil needs, making it acutely sensitive to movements in global crude prices. Brent crude averaged $107 a barrel in May, raising the cost of energy, transportation, and manufacturing inputs across the economy. The RBI said this persistent elevation would weigh on corporate margins and consumer spending over the coming quarters.

Inflation is projected to rise gradually over the year, with consumer price index inflation expected at 4.2 percent in the first quarter of FY27, climbing to 5.9 percent in the third quarter. The RBI’s target band sits between 2 and 6 percent, giving the committee limited room to cut rates even as growth moderates.

Despite the downward revision, India remains among the fastest-growing major economies in the world. The country recorded full-year GDP growth of 7.7 percent in FY26, driven by strong domestic consumption, public infrastructure spending, and a robust services export sector.

The rate hold was in line with expectations. Two of the six committee members voted for a 25 basis point cut, reflecting a split within the panel over the balance between inflation risk and growth support.

Finance Minister Nirmala Sitharaman said the government would monitor the oil price situation and had tools available to manage the impact on consumers. The RBI said it was closely monitoring the US-Iran peace negotiations. The Reserve Bank of India published the full policy statement on its official website. Earlier coverage of the US inflation surge from the Iran conflict and global market impacts provides context. The India-US diplomatic tensions over the tanker strikes also shaped the RBI’s cautious outlook.