The Reserve Bank of India (RBI) elected to leave its benchmark policy rate unchanged on Wednesday, with the central bank’s six-member monetary policy committee (MPC) unanimously voting to keep the repo rate at 5.25%. The MPC also opted to continue the existing "neutral" stance on monetary policy.
RBI governor Sanjay Malhotra, in presenting the decision, said that geopolitical tensions stemming from the war in Iran have intensified since the previous policy meeting and that the full economic impact remains unclear. He noted that although inflation currently appears to be under control, upside risks have increased and the potential for second-round effects makes the outlook uncertain.
High-frequency indicators, the governor added, still point to robust growth momentum. However, he warned that the conflict in the Middle East is likely to weigh on that momentum going forward.
Government estimates referenced by the central bank project the Indian economy to expand by more than 7% in the fiscal year that began on April 1, with inflation expected to remain near the RBI’s target of 4%. The policy decision followed broad market expectations: a Reuters poll conducted March 23-26 showed that 69 of 71 economists expected the RBI to hold the repo rate steady.
Policymakers flagged a key channel of risk: a sharp increase in oil prices since the outbreak of conflict between Iran and the United States and Israel. The rise in global oil costs is expected to both depress growth and add inflationary pressure, according to the assessment presented with the policy decision.
Those concerns have already been visible in financial markets. Equities and government bond benchmarks have declined amid the heightened geopolitical uncertainty, and the Indian rupee fell to a record low relative to recent levels since the war began at the end of February.
Context and implications
The unanimous hold and neutral stance signal the MPC’s current preference to await clearer evidence on how the external shock will filter through to domestic inflation and growth dynamics. With policy unchanged, attention will turn to incoming data - particularly energy prices, inflation readings, and high-frequency growth indicators - to assess whether the central bank needs to shift policy as risks evolve.