Iran war and monsoons key risk for Indian economy, says RBI Governor Sanjay Malhotra

India’s inflation remains elevated, with ongoing tensions in the Middle East and prospects of a weak monsoon season seen as key risks for the economy, according to Reserve Bank of India Governor Sanjay Malhotra.

In an interview with Doordarshan on Friday, Malhotra said recent price pressures were largely driven by supply-side factors. Official figures out earlier this week showed India’s inflation rose above the central bank’s 4% target for the first time in nearly a year and a half.

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The RBI has left its benchmark policy rate unchanged at 5.25% so far this year. A few weeks after its last decision in June, Malhotra said in an interview that it was “premature” to discuss monetary policy tightening.

Since those remarks, oil prices have rebound as the US and Iran resumed hostilities, threatening shipping through the Strait of Hormuz, which carries about 20% of the world’s crude. India imports nearly 90% of its oil needs, with almost half typically shipped through the waterway before tensions escalated in late February.

The six-member monetary policy committee of the RBI will meet August 3-5 to review interest rates.

Malhotra said that the country’s fundamentals remain strong, with a decent pace of economic expansion despite geopolitical uncertainties. Even so, the challenges for the economy remain and policymakers need to stay in a “wait and watch” mode, he added.