The Reserve Bank of India (RBI) on Wednesday kept interest rates unchanged, as widely expected, amid cautious optimism over a potential global recovery following a ceasefire in the ongoing war between the US and Israel against Iran. 

The war led to a wider conflict in the Middle East region, which disrupted energy supplies, pushed up crude oil prices, and triggered fiscal and inflationary pressures for import-dependent economies such as India.

This is the first monetary policy review since the government last month renewed the RBI’s inflation-targeting framework. The central bank has been mandated to maintain retail inflation at 4 per cent, with a tolerance band of 2 percentage points on either side, for another five-year period ending March 2031.

Announcing the first bi-monthly monetary policy of the current fiscal, 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 stance.

The rate cut pause comes on the back of the consumer price index (CPI) based headline retail inflation that moved closer to the RBI's medium-term target of 4 per cent at 3.21 per cent in February.

Additionally, the rupee has depreciated by over 4 per cent since the war, which has consequences for pushing up import inflation. However, the rupee has appreciated by 50 paise to 92.56 against the US dollar following the announcement of the ceasefire by the US and Iran.

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 Consumer Price Index (CPI) series was introduced. However, the rupee declined to a historic low and crossed 95 against a dollar last month, making imports costlier, raising fears of a rise in inflation. Rupee touched a record low of 95.21 on March 30, 2026.