Bank of America has revised down its outlook for India's near-term growth while lifting its inflation expectations, saying that a sustained energy price shock related to the Middle East conflict is starting to show measurable effects on the economy.
Key revisions
- BofA economist Rahul Bajoria lowered the bank's fiscal year 2027 GDP forecast to 6.5% from 7.0%.
- The bank raised its inflation projection to 5.2% from 4.7%.
- These changes reflect a new crude oil price baseline of $92.50 per barrel versus the prior assumption of $77.50.
The bank also warned of further downside risk to growth, saying there is "1-2pp downside risk to our growth projections" if the conflict intensifies or persists. Early high-frequency indicators for March, BofA said, point to developing strains across several activity measures.
March indicators highlighted by BofA
- Manufacturing PMI slid to its weakest reading since June 2022.
- Cost inflation reached a 43-month high.
- International air traffic fell 18% year-on-year in March, a drop linked to a rise in aviation turbine fuel prices.
- Vehicle sales and credit growth, however, continued to hold up in the data reviewed.
BofA singled out worsening terms of trade as an important transmission channel for the shock. The bank expects higher energy costs to push through to wholesale prices within a one-to-three month window, amplifying inflationary pressure.
On monetary policy, BofA now anticipates a more hawkish stance from the Reserve Bank of India. As Bajoria put it, "We build in 50 basis points of rate hike in FY27 by RBI basis our current growth-inflation dynamics."
The bank's revisions rest on an elevated oil-price baseline and early signs from high-frequency data that suggest tightening cost pressures and weakened activity in some sectors. While certain demand indicators such as vehicle sales and credit growth remain resilient, the overall picture has shifted toward a less favorable growth-inflation mix, according to BofA's analysis.