The Reserve Bank of India (RBI) kept its benchmark repurchase rate unchanged at 5.25% in its first policy decision since the outbreak of the Middle East crisis, signaling a cautious approach amid a weakening rupee and uncertain growth prospects. The six-member Monetary Policy Committee voted unanimously to maintain the rate and retained a neutral policy stance, in line with all economist estimates surveyed by Bloomberg.
Governor Sanjay Malhotra emphasized that the MPC’s decision preserves the flexibility to respond to emerging pressures, projecting a 6.9% growth rate for the current financial year—higher than many private-sector forecasts—and inflation of 4.6%, comfortably within the RBI’s 2%-6% target. The move reflects a wait-and-see approach as heightened Iran-US tensions strain India’s energy supplies and weigh on its economic outlook.
India’s rupee has slumped roughly 7% over the past year, ranking among Asia’s weakest currencies, while the country’s dependence on the Middle East for half of its crude oil and most cooking gas has intensified market anxieties. Before the RBI announcement, sovereign bond yields had plunged to their lowest in four years following a temporary ceasefire that eased oil prices. The rupee subsequently strengthened 0.5% against the dollar, and the NSE Nifty 50 Index surged 3.3% as investors reacted to the policy decision.
Economists caution that prolonged energy shocks could force the RBI to consider rate hikes. “Elevated inflation risks from oil and geopolitical tensions reduce the room for near-term easing, reinforcing a prolonged pause,” said Radhika Rao of DBS Group Holdings. The central bank has already cut rates by 125 basis points since February last year, but rising energy costs could feed into inflation, limiting further easing.
Private forecasts have already adjusted downward due to oil dependence, with Goldman Sachs projecting 5.9% calendar-year growth and Standard Chartered revising its current financial year forecast to 6.4%, compared with expectations near 7% before the Iran crisis, according to Bloomberg. The RBI’s careful stance signals that India’s monetary policy is balancing between supporting growth and shielding the economy from external shocks.
