First time in this rate cycle, RBI faces growth-inflation dilemma The Reserve Bank of India (RBI) is encountering its first significant challenge since the start of the current rate-cut cycle, as it grapples with a growth-inflation tradeoff triggered by the war in West Asia. This dilemma marks a departure from the earlier "goldilocks period" characterized by low inflation and robust economic growth. The April 2026 monetary policy review will be the first under the new series for GDP and inflation projections, coinciding with the start of the inflation target period from April 1, 2026, to March 31, 2031. The economic landscape shifted dramatically in the past month due to the war’s impact on global supply chains. Chief Economic Advisor V Anantha Nageswaran highlighted four key channels through which the conflict affects the economy: disruptions in oil, gas, and fertilizer supplies, higher import costs, increased logistics expenses, and reduced remittances from Indian workers in the Gulf. These factors threaten to derail the previously stable growth trajectory, which saw GDP expand at 8% in the first half of the financial year. RBI Governor Sanjay Malhotra, who assumed office in December 2024, had previously described this phase as a "rare goldilocks period," with inflation at 2.2% and growth remaining strong. However, the war has disrupted this equilibrium, forcing the central bank to reconsider its approach. The Monetary Policy Committee now faces the challenge of balancing inflation control with the need to sustain growth, as rising oil prices and geopolitical tensions could push inflation higher. The RBI’s upcoming policy meeting on April 6-8 will be pivotal in shaping the trajectory of monetary policy.#reserve_bank_of_india #sanjay_malhotra #v_anantha_nageswaran #madan_sabnavis #gaura_sen_gupta
