The Reserve Bank of India (RBI) left its benchmark repo rate unchanged at 5.25% on Wednesday, choosing to wait for clearer evidence on whether rising global oil prices are feeding into broader inflationary pressures in Asia’s third-largest economy. According to Reuters, the decision distinguishes India from several regional central banks that have responded to higher energy prices and currency volatility by tightening monetary policy.
The RBI’s six-member Monetary Policy Committee voted unanimously to keep the benchmark interest rate unchanged while also retaining its “neutral” policy stance. Reuters reported that the decision was widely anticipated, with 68 of the 72 economists surveyed expecting the central bank to leave rates on hold.
Announcing the policy decision, RBI Governor Sanjay Malhotra said headline inflation had moved above the central bank’s target primarily because of higher fuel prices, while broader price pressures remained contained. He reiterated the central bank’s “resolute” commitment to achieving its inflation target and signalled that policymakers would not rush to adjust interest rates until there was greater clarity regarding the inflation outlook.
The decision follows measures introduced at the RBI’s previous policy meeting aimed at strengthening capital inflows and supporting the Indian rupee rather than raising borrowing costs. Reuters noted that this approach contrasts with policy actions taken by several other Asian central banks, including those in Indonesia and the Philippines, which have tightened monetary policy in response to inflationary pressures linked to higher energy prices and geopolitical uncertainty.
Financial markets reacted cautiously to the announcement. According to Reuters, India’s benchmark 10-year government bond yield remained broadly unchanged at 6.78%, while the rupee weakened by more than 0.1% to 95.09 against the US dollar. Equity markets posted modest gains, with the benchmark Nifty 50 index rising 0.1% and the BSE Sensex advancing 0.5%.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, told Reuters that the RBI had delivered a “well balanced” policy statement that appropriately acknowledged existing risks while reinforcing that future decisions would remain dependent on incoming economic data. Bhardwaj said she continued to expect cumulative interest rate increases totalling 50 basis points between now and the end of March.
The central bank also revised its economic forecasts. Reuters reported that the RBI lowered its average inflation projection for the current financial year to 5%, down from the 5.1% forecast issued in June. The forecast for core inflation, which excludes food and fuel prices, was reduced more significantly to 4.3% from 4.7%.
Although India’s retail inflation exceeded the RBI’s medium-term target of 4% in June for the first time in 17 months, it is expected to remain within the central bank’s tolerance range of 2% to 6% throughout the current financial year. According to Reuters, this outlook gives policymakers additional flexibility in determining the future direction of monetary policy.
The RBI also marginally upgraded its economic growth forecast for the current financial year to 6.7%, compared with the 6.6% estimate published in June. The revision reflects confidence that domestic economic activity remains resilient despite mixed indicators. While manufacturing activity has weakened, with the purchasing managers’ index falling to a five-year low, credit demand continues to expand strongly at nearly 18%.
Malhotra said domestic demand remained resilient but warned that a weak monsoon season, uncertainty surrounding global trade and geopolitical tensions could present risks to future economic growth.
On India’s external position, Malhotra said the country’s balance of payments is expected to record a “healthy surplus” during the current year. According to Reuters, measures introduced by the RBI in June—including a subsidised US dollar deposit scheme targeting the Indian diaspora and incentives for banks and state-owned companies to raise overseas borrowings—have attracted more than US$41 billion in capital inflows.
Reuters reported that those inflows, combined with lower oil prices and interventions by the central bank through dollar sales, have helped stabilise the rupee. The currency has recovered by around 1% since June, although it remains down 5.4% over the course of the year.
Reaffirming the RBI’s exchange-rate policy, Malhotra said the value of the rupee would continue to be determined by market forces, while the central bank would act to curb excessive volatility, discourage speculative behaviour and prevent disorderly market movements that could become disconnected from economic fundamentals or disrupt economic activity.
