India's fundamentals remain strong but West Asia conflict will adversely impact growth, cautions RBI

High frequency indicators till February 2026 suggest the continuation of strong momentum in economic activity, RBI stated in its monetary policy report. Growth impulses continue to be supported by robust private consumption and investment demand. However, the West Asia conflict will adversely impact growth, RBI noted. Higher input costs associated with increase in energy prices and international freight and insurance costs along with supply-chain disruptions could constrain availability of key inputs for downstream sectors, thus impairing growth.

The Government has taken several measures targeted at supporting exports and protecting supply chains, which should mitigate the adverse impact of the conflict, the central bank stated. The MPC noted that the intensity and the duration of the conflict in West Asia and the resultant damage to the energy and other infrastructure add risk to the inflation and growth outlooks.

However, the fundamentals of the Indian economy are on a stronger footing, providing it with greater resilience to withstand shocks now than in the past. The economy is confronted with a supply shock. It is prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook. Accordingly, the MPC voted to keep the policy rate unchanged even as it remains vigilant, closely monitoring incoming information and assessing the balance of risks. The MPC also decided to continue with the neutral stance, retaining the flexibility to respond judiciously to incoming information.