America-Potential hurdles in the Iran peace deal and weakness of the south-west monsoon may put pressure on India’s economic growth and inflation. This apprehension was expressed in a bulletin of the Reserve Bank of India (RBI) on Monday. An article titled ‘State of the Economy’ published in the June Bulletin said that despite the interim peace agreement in West Asia, geopolitical tensions and trade-related deadlocks persist.
What will happen if America-Iran agreement is broken?
According to the bulletin, the temporary agreement between America and Iran has definitely brought some relief, but the global economic scenario still remains weak. The article said, “If this agreement is broken, risks such as surge in inflation, energy supply disruptions, investment delays, food security concerns and financial instability could increase again, which could also put pressure on growth rates.”
Currently retail inflation is under control
Amid this challenging global environment, the Indian economy recorded a growth of 7.8 percent in the fourth quarter of 2025-26, supported by private consumption and fixed investment. According to the RBI bulletin, high-frequency indicators for the first two months of FY 2026-27 indicate continued strength in economic activity. However, despite some pick-up in May, Consumer Price Index (CPI) based retail inflation remains within a controlled range.
India’s external sector still strong
India’s external sector still remains strong on the back of foreign direct investment (FDI) inflows and adequate foreign exchange reserves. According to the RBI article, “Amidst the ongoing global instability, the Indian economy entered this phase with stronger fundamentals in terms of absorbing shocks than many other countries.”
Inflation increased due to increase in prices of commercial LPG cylinders
However, the impact of the increase in commercial LPG cylinder prices was reflected in the rise in inflation in the ‘Restaurant and Hostel’ category. In May, a gradual increase in inflation was recorded in 8 out of 12 categories. Food and beverage items also witnessed rising inflation, which was due to unusual seasonal trends during the summer. Prices of rice, wheat and pulses rose, while prices of major vegetables like potato, onion and tomato also increased. There was also a significant increase in the prices of edible oils on a monthly basis.
Petrol and diesel become expensive due to increase in crude oil prices
Crude oil prices remained high due to disruptions in the energy supply chain, but they have moderated somewhat in June. The rise in international prices of crude oil also had a direct impact on retail prices. Due to which the prices of petrol and diesel were increased four times in May by approximately Rs 7.5 and Rs 7.6 per liter respectively. The central bank clarified that the views expressed in the bulletin are the personal views of the authors and are not the official views of the RBI.
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