RBI holds interest rates steady amid inflation concerns

The Reserve Bank of India (RBI) on Wednesday kept its key policy rate unchanged, citing ongoing inflationary pressures and global uncertainties linked to the six-week-long US/Israel-Iran conflict.

The central bank’s decision follows disruptions in energy supplies during the month-and-a-half-long conflict in West Asia, which led to a rise in crude oil prices and added fiscal and inflationary pressures for import-dependent economies such as India.

This is the first monetary policy review since the government last month set a fresh inflation target for the RBI. The central bank has been tasked with maintaining retail inflation at 4 per cent, with a tolerance band of 2 per cent on either side, for another five-year period ending March 2031.

Announcing the first bi-monthly monetary policy of the current financial year, Sanjay Malhotra said the Monetary Policy Committee (MPC) had unanimously decided to retain the short-term lending rate, or repo rate, at 5.25 per cent while maintaining a neutral stance.

The decision to pause rate cuts comes as headline retail inflation, measured by the consumer price index (CPI), moved closer to the RBI’s medium-term target, reaching 3.21 per cent in February.

Currency movements have also influenced the policy outlook. The rupee has depreciated by over 4 per cent since the conflict began, increasing import costs and contributing to inflationary pressures.

However, the rupee recovered slightly, appreciating by 50 paise to 92.56 against the US dollar following the announcement of a ceasefire between the US and Iran.

The RBI had earlier reduced the repo rate by 25 basis points each in February, April, and December 2025, and by 50 basis points in June, based on MPC recommendations, as retail inflation showed signs of easing.

Retail inflation fell to 0.25 per cent in October 2025, the lowest level recorded since the CPI series was introduced.

Despite this, the rupee weakened to a historic low last month, crossing the 95 mark against the US dollar. It touched a record low of 95.21 on March 30, 2026, raising concerns over rising import costs and potential inflationary impact.