- Economist Bhattacharya says energy prices won't return to pre-war levels soon
- Monsoon in India projected to be 90% below average due to strong El Nino
- RBI kept repo rate at 5.25% amid rising inflation and uncertain growth outlook
Economist Saugata Bhattacharya has said that in the near or even the medium term, energy prices are unlikely to return to the levels they held before the war between the US, Israel and Iran.
This statement was made within the context of inflation risks. Bhattacharya said these risks might be escalated by a deficit in rain, which may affect agricultural output and their prices, along with ongoing commidity supply shocks, according to the minutes of the meeting of the Reserve Bank of India's Monetary Policy Committee.
"Energy prices are unlikely, in the near or even the medium term, to return to their pre-conflict levels. Every additional day of persisting disruptions is likely to result in a non-linear escalation of cumulative macroeconomic consequences," Bhattacharya stated.
The India Meterological Department said that monsoon in India will be below normal in 2026, while expecting rainfall to be 90% below average. This was due to the escalating conditions of the El Nino climate phenomenon, projected to be in the "moderate to strong category" by September.
Bhattacharya also detailed his reasoning for voting to maintain the repo rate, citing higher inflation projections and the various factors spurring it. He further stated that the outlook regarding the trade off between investment for growth and rising inflation remains cloudy. The RBI had voted to keep the repo rate the same at 5.25% with a neutral outlook in the meeting.
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"The challenge remains to determine the extent of the shocks being transitory versus persistently percolating through the economy, and the time expected for both inflation and growth to revert to their targets and aspirations, respectively, has further increased," he said.
He also drew attention to "the sharp rise" in the Wholesale Price Index inflation print for April 2026, and highlighted the risk of input costs being passed on to goods and services.
Bhattacharya cited the RBI inflation expectations survey, which indicated a consistent and significant increase in one year ahead inflation expectations. He also expressed concern regarding the perception of higher inflation projections in comparison to the official published data. These findings were corroborated by the IIM Ahmedabad Business Inflation Expectations Survey.
The economist pointed towards rising global inflationary pressures which are influencing key central banks the world to either pause or hike their repo rates, which could increase the spill-over effect on Indian capital flows. "India's Balance of Payments data for Q4 FY26 are awaited, but the capital account continues to remain potentially vulnerable to global geo-economic disruptions," Bhattacharya said.
He added that the real "netural" policy rates for major global central banks are likely to have risen. "Given the multiple overlapping geo-economic shocks clouding the future, I believe that risk management is now the most sensible approach to monetary policy responses; this has now been articulated by multiple central banks and academic research," the economist stated.
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