The Reserve Bank of India maintained its benchmark rate at 5.25% despite rising inflation and global oil price pressures, signalling a cautious approach as domestic demand remains resilient amid ongoing geopolitical tensions.
India’s central bank left interest rates unchanged on Wednesday as policymakers waited to see whether the spike in oil prices linked to the Iran war would filter through into broader inflation. The Reserve Bank of India held its benchmark repo rate at 5.25 per cent after a unanimous vote by its six-member Monetary Policy Committee, even as many emerging-market peers have tightened policy since the Middle East crisis began.
The pause came after retail inflation quickened to 4.4 per cent in June, according to official data, rising above the Reserve Bank’s 4 per cent midpoint target for the first time in 17 months. Separate reports from Indian business media showed food inflation also moved higher, with costs for essentials adding pressure on household budgets. The central bank has said inflation remains driven mainly by food and fuel rather than a broad-based pickup in prices.
Governor Sanjay Malhotra said domestic demand remained resilient and argued that policymakers needed more clarity on the direction and composition of inflation before acting. He also acknowledged pressure on the rupee, which had earlier touched a record low, but the RBI has so far preferred to support the currency through measures aimed at attracting dollar inflows rather than through higher borrowing costs. Those steps, including a deposit scheme for the Indian diaspora, have brought in more than $40 billion since June and helped strengthen foreign-exchange reserves, according to the central bank.
India is especially exposed to a sustained energy shock because it is the world’s third-largest oil buyer and normally takes about half its crude through the Strait of Hormuz. Analysts say that leaves the economy vulnerable to higher import costs if crude and fertiliser prices keep rising. For now, the Reserve Bank appears to be betting that the inflation spike will prove temporary, but the tone from Malhotra suggested policymakers are not yet ready to shift decisively in either direction.
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