Retail prices of daily essentials are rising rapidly. The prices of edible oils, pulses and packaged foods, including drinking water, have moved up since last month. Precious metals have hit record highs, with gold prices rising above Rs.153,000 per 10 grams in some markets on April 8, 2026, driven by safe-haven demand. Costs for raw materials like coking coal have increased by around 10 percent, directly affecting steel producers, 95 percent of whom rely on imports. Wholesale inflation for food items started accelerating since February, with sharp increases in oilseed prices. India’s wholesale prices (WPI) rose 2.13 percent in February alone, the fastest increase in a year, driven by high manufacturing and food prices.

Interestingly, the country's central bank seemed to be less concerned about the disturbing inflationary trend and is more focussed on maintaining economic growth amidst inflation. Last week, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) decided to retain the repo rate at 5.25 percent for the second consecutive time, marking an extended pause. The RBI decision to hold rates was believed to have been driven by a need to balance strong domestic growth with rising inflationary pressures.

The decision appears to have been highly influenced by government policy. The government is trying desperately to maintain the growth of the economy in the face of rising inflation, increasing cost of imports, dwindling exports, falling value of the domestic currency and sharp decline in remittances from West Asia among many others. It is expected that the RBI would maintain a cautious, “neutral” monetary policy in 2026, keeping interest rates steady to combat inflation, with experts warning that higher rates-necessitated by geopolitical tensions and rising oil prices-could slow India’s GDP growth from 7.6 percent in FY26 to 6.9 percent or even lower in FY27.

While the RBI held rates in April 2026, persistently high inflation-driven by supply issues and a 4.6 percent inflation projection (up from 4.2 percent)-may eventually force some belt tightening. The OECD's interim report in March projects India might need to temporarily increase rates in Q2 2026. The West Asia conflict and high crude oil prices are major risks threatening to drive up input costs and inflation, putting downward pressure on growth. Although India remains a fastest-growing major economy, forecasts for the April 2026-March 2027 period have been tempered. The RBI projects 6.9 percent growth, while the World Bank and the international Monetary Fund (IMF) have made varying projections between 6.4 percent and 6.6 percent due to global headwinds. Despite potential slowdowns, analysts believe that strong domestic demand, high manufacturing activity, and improved corporate balance sheets offer some immunity to the economy.

The Iran conflict poses a significant risk to India’s $135+ billion remittance inflow, with over 90 lakh Indian workers in the Gulf region facing potential job losses, pay cuts, and forced repatriation. Nearly 38-40 percent of India’s remittances, or around $51 billion, come from the Gulf Cooperation Council (GCC) region, making the economy vulnerable to the ongoing disruptions and rising operational costs. Around 200,000 Indian jobs in construction and services are at risk due to the conflict, with 20-50 percent experiencing potential pay cuts or unpaid leave. Over 220,000 Indian nationals have already been repatriated. Each returning worker represents a lost income source for households, impacting consumption in Indian states like Kerala, Uttar Pradesh, and Bihar. Rising local costs in the GCC region, along with companies cutting expenses, are reducing the disposable income available for workers to send home.

Under the circumstances, a tightened monetary policy to control inflation would stand in the way of the government's economic objectives and the need for maintaining a high growth rate to support domestic employment and income. Its decision to retain the bank rate may have more to do with economic challenges faced by the government than to control inflation although the latter is the primary function of the central bank. The policy rep rate is rooted in controlling inflation and maintaining financial stability while managing economic growth within a flexible inflation-targeting framework.

The RBI's monetary policy committee reviews these rates every two months to align the economy with a Consumer Price Index (CPI) target of four percent (±two percent tolerance band). Continuing tensions in West Asia are causing supply chain disruptions and pushing up energy prices. The Indian Rupee’s near continuous dip against the US Dollar has made imports (crude oil, metals, edible oil) more expensive. The improvement of the country's highway infrastructure has led to a more public reliance on road transport. The increasing logistics demand is pushing up costs.

As of April, India is experiencing a significant surge in commodity and transportation costs, driven by a combination of high global oil prices, geopolitical tensions in West Asia, and a weak Indian rupee. Major logistics companies, including Blue Dart, MOVIN, and Allcargo Gati, announced 8-12 percent hikes in freight rates, citing elevated fuel, labour, and infrastructure costs. Despite government efforts to keep petrol and diesel prices stable, transportation costs are increasing, largely due to high crude oil prices trading near US$ 90-110 per barrel. Costs are rising due to increased wages, higher truck financing costs, and a new truck toll scheduled for mid-2026.

Normally, the central bank’s repo rate is directly linked to the inflation rate as a key tool for monetary policy. The relationship is typically inverse: the central bank raises the repo rate to cool down high inflation by reducing money supply, and lowers it to stimulate growth during low inflation. When inflation is high, the central bank increases the repo rate, making borrowing costlier for banks. This reduces the money supply, slows down spending, and helps control demand-side inflation. If inflation is low but economic growth is sluggish, the central bank may lower the repo rate to encourage borrowing, spending, and investment.

A rise in the repo rate usually leads to increased interest rates on home, personal, and business loans, while a reduction makes these loans cheaper. Central banks often target an ideal inflation range - two to six percent as in the case of India — and adjust the repo rate based on where they expect inflation to go. If the RBI has deviated from the trend to retain the repo rate, it is purely to protect and pep up the economic growth and employment under the unusual context of the Gulf war. (IPA Service)

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