RBI keeps interest rates unchanged as Middle East crisis clouds outlook
The Reserve Bank of India maintained its key interest rate at 5.25%, assessing global conflicts' inflationary impact and a depreciating rupee.
The Reserve Bank of India maintained its key interest rate at 5.25%, assessing global conflicts' inflationary impact and a depreciating rupee.
The Reserve Bank of India maintained its key interest rate at 5.25%, assessing global conflicts' inflationary impact and a depreciating rupee.
The Reserve Bank of India (RBI) on Friday left key interest rates unchanged for the second consecutive policy review, as policymakers assessed the impact of rising energy prices and supply disruptions stemming from the ongoing conflict in the Middle East.
The decision comes against the backdrop of a three-month-long regional conflict that has disrupted energy supplies, pushed up crude oil prices and heightened inflationary and fiscal risks for import-dependent economies such as India.
Announcing the second bi-monthly monetary policy of the current financial year, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously decided to keep the benchmark repo rate unchanged at 5.25 per cent while maintaining a neutral policy stance.
The RBI's decision to pause rate action comes even as retail inflation has eased significantly. Consumer Price Index (CPI)-based inflation stood at 3.48 per cent in April, moving closer to the central bank's medium-term target of 4 per cent.
Moreover, there is fear of inflation further inching up due to the expected weak monsoon and fuel price rise in the coming months.
Additionally, the rupee has been depreciating continuously since the beginning of this year. The rupee settled at a record closing low of 96.86 against the USD on May 20, 2026, dropping 33 paise from its previous close.
Once considered among Asia's more stable currencies, the rupee has now become one of the worst-performing emerging market currencies this year, pressured by a mix of expensive oil, capital outflows, widening trade deficits and a surging US dollar.
It has depreciated about 7 per cent so far in 2026 and is down roughly 6 per cent since the outbreak of the Iran conflict in late February.
Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February, April, and December 2025 and 50 basis points in June amidst easing retail inflation.
India's retail inflation dropped to a historic low of 0.25 per cent in October 2025, marking the lowest level since the CPI series was introduced.