RBI MPC Meeting 2026: West Asia conflict keeps global outlook uncertain, says Sanjay Malhotra

The Reserve Bank of India on Wednesday raised the policy repo rate by 25 basis points to 5.50%, its first rate hike since February 2023, amid rising global and domestic economic uncertainties. Addressing the Monetary Policy Committee's decision, RBI Governor Sanjay Malhotra said the global context remained challenging due to geopolitical developments, while the Indian economy remained strong and economic momentum broad-based. Also Read: RBI MPC Meeting at a Glance: Your one step guide for all decisions “The MPC noted that the global context, on account of geopolitical developments, remains challenging. Nonetheless, the Indian economy has been strong, and the economic momentum remains broad-based,” Malhotra said. West Asia conflict keeps global outlook uncertain The RBI said the re-escalation of the conflict in West Asia since the last MPC meeting in August and the consequent sharp volatility in crude oil prices have kept the global economy in a state of flux. Also Read: RBI MPC Meeting 2026: West Asia conflict keeps global outlook uncertain, says Sanjay Malhotra The central bank said global growth has remained resilient, while accelerating inflation in key economies has prompted a shift towards hawkish monetary policy. The US Federal Reserve raised its policy rate by 25 basis points in September, while Fed commentary and rate tightening by other major systemically important central banks have reinforced expectations of higher global policy rates. Also Read: RBI MPC Meeting 2026: Malhotra & Co hike repo rate by 25 bps to 5.50% for first time in nearly 4 years as inflation pressures build Tighter global financial conditions, coupled with fiscal sustainability concerns in major economies, are keeping global bond yields at record high levels, the RBI said. With a resolution to the West Asia conflict remaining elusive, significant downside risks to the global outlook remain, including further tightening of global financial conditions, continuing elevated AI-related asset valuations and high public debt. Impact on India's economy Looking ahead, the RBI said global economic uncertainty will continue to have some bearing on domestic economic activity. Energy prices and supply chain pressures have continued, although their near-term trajectory remains uncertain amid the lingering West Asia conflict. The RBI said their adverse impact is being contained through active diversification of supply sources. The central bank said deficient southwest monsoon and strong El Niño conditions pose risks to the agriculture sector's outlook and rural demand, although a healthy buffer of foodgrains and proactive government policy interventions are expected to mitigate the impact. Continuing momentum in services and broadly stable employment conditions are likely to support urban demand, while strong capacity utilisation, robust credit flows and the government's thrust on infrastructure are expected to sustain investment activity. The RBI said services exports are expected to remain buoyant, while bilateral trade agreements should boost merchandise exports.