Fitch Ratings stated on Friday that consistently high oil prices could push India’s retail inflation up more quickly than expected and slow economic growth during the first half of financial year 2026-27 (FY27). The agency noted early indications that economic activity may be moderating in January and February, as reflected in the Purchasing Managers’ Index surveys. Despite these signs, the economy continues to show resilience, with credit growth remaining in double digits. Fitch expects growth to soften in the first half of FY26-27 because rising inflation may reduce real household incomes and limit consumer spending.

Even so, Fitch raised India’s FY27 growth forecast by 30 basis points to 6.7 percent, while projecting 7.5 percent growth for FY26. According to the report, inflation is expected to gradually increase to 4.5 percent by December 2026, though it should remain within the central bank’s tolerance range of 2 to 6 percent. Inflation has already begun to rise from the lows seen last autumn when food prices declined. It increased to 2.7 percent in January, up from 1.2 percent in December, and could accelerate faster if oil prices remain elevated.

Recent figures released by the statistics ministry also showed that inflation climbed to 3.2 percent in February, mainly driven by higher food prices. Fitch also highlighted that the Reserve Bank of India kept its policy rate unchanged at 5.25 percent in February while maintaining a neutral monetary policy stance. The agency expects interest rates to stay at this level through this year and the next.

The report further warned that tensions in West Asia could affect oil production and exports from countries in the Gulf Cooperation Council, especially if shipping through the Strait of Hormuz is disrupted. Such a disruption could impact oil supplies equivalent to about 20 percent of global consumption. Fitch estimates that if oil prices climb to around 95 to 100 dollars per barrel and remain at that level, global Gross Domestic Product could decline by roughly 0.4 percent compared to baseline projections after one year.

However, in its base-case scenario, the agency expects oil prices to remain between 90 and 100 dollars through March, assuming the Strait stays effectively closed for about a month. Prices are then projected to drop to the mid-60 dollar range by the second half of 2026 due to an oversupplied global market.

This outlook suggests an average oil price of about 70 dollars in 2026, up from 63 dollars estimated earlier. Fitch believes this adjustment will not significantly affect global economic growth, inflation, or monetary policy. Assuming the conflict involving Iran does not trigger a prolonged surge in energy prices pushing the annual oil price above 70 dollars per barrel, Fitch expects global GDP growth to remain stable at around 2.6 percent this year.