The Reserve Bank of India opted to keep its benchmark policy rate unchanged at 5.25% on Wednesday, a decision that aligned with market expectations. In a post-meeting livestream, Governor Sanjay Malhotra emphasized that global geopolitical uncertainty has risen sharply in recent months and highlighted the potential economic fallout from the ongoing conflict involving Iran.
Governor Malhotra said that, while the U.S. and Iran did announce a ceasefire, the conflict continued to carry the potential for disruptions across energy, shipping, and insurance markets. He warned that such disruptions could weigh on global growth and, by extension, the Indian economy.
"Risks to the baseline projections are tilted to the downside, with uncertainty remaining elevated due to the ongoing West Asia conflict," Malhotra said during the livestream. He added that higher global energy prices have already begun to filter through into certain fuel items, though headline inflation has remained relatively muted in recent months.
The RBI reaffirmed its medium-term projections, forecasting consumer price index inflation of 4.6% in fiscal 2027 and gross domestic product growth of 6.9% for the same period. These projections were presented alongside the central bank's outlook for fiscal 2026, which showed CPI at 2.6% and GDP growth at 6.8%.
Officials also signaled intervention activity in foreign exchange markets in recent weeks. The central bank was seen stepping into currency markets repeatedly through late-March and early-April in an effort to limit further depreciation of the rupee. The Indian currency reached a series of record lows against the U.S. dollar amid market concerns about the economic effects of potential disruptions to energy imports.
India's exposure to disruptions stems in part from its heavy reliance on energy supplies that transit the Strait of Hormuz. The central bank noted that a prolonged period of supply interruptions and elevated energy costs could push Indian inflation higher in the coming months, intensifying pressures on consumer fuel items and broader price dynamics.
Bottom line: The RBI held rates steady at 5.25% while underlining that geopolitical developments in West Asia - particularly those affecting energy and shipping - represent material downside risks to growth and upside risks to inflation if disruptions persist.