BofA Cuts India Growth Forecast, Raises Inflation Outlook
Bank of America has lowered its growth expectations for India while increasing its inflation projections, warning that prolonged energy price shocks linked to Middle East tensions are starting to impact the economy.
Higher Oil Prices Weigh on Economic Outlook
Economist Rahul Bajoria revised India’s fiscal year 2027 GDP growth forecast down to 6.5% from 7%. At the same time, the inflation outlook was raised to 5.2% from 4.7%.
This adjustment reflects a higher crude oil price assumption of $92.50 per barrel, compared to the previous estimate of $77.50, highlighting the growing pressure from energy markets.
Downside Risks Increase if Conflict Escalates
Bank of America also warned of further risks to growth, noting that India’s GDP projections could face an additional 1–2 percentage point downside if geopolitical tensions intensify or persist for a longer period.
Early Data Signals Economic Strain
Recent high-frequency data suggests early signs of stress in the economy. Manufacturing activity slowed, with PMI dropping to its lowest level since June 2022, while cost inflation surged to a 43-month high.
At the same time, international air travel declined by 18% year-on-year in March, largely due to rising aviation fuel costs. However, some areas such as vehicle sales and credit growth have remained relatively resilient.
Rising Costs and Trade Pressures
BofA highlighted deteriorating terms of trade as a major transmission channel for inflation. Higher energy costs are expected to pass through into wholesale prices within one to three months, further pressuring businesses and consumers.
RBI Expected to Turn More Hawkish
Looking ahead, Bank of America anticipates a shift in monetary policy from the Reserve Bank of India. The bank now expects a more hawkish stance, with an estimated 50 basis points of rate hikes during FY2027 based on the current growth and inflation outlook.
