MUMBAI: The Reserve Bank of India’s rate-setting panel on Friday unanimously kept the repo rate unchanged at 5.25% and retained its “neutral” stance, despite a sharp depreciation in the rupee and repeated fuel price hikes amid the conflict in West Asia. The decision was widely in line with market expectations.
A Mint poll of 10 economists and market participants had pointed to rising inflation risks and a weakening growth outlook, with all respondents expecting the central bank’s Monetary Policy Committee (MPC) while signalling a more cautious policy approach.
The RBI cut the repo rate—the rate at which it lends short-term funds to banks—by a cumulative 125 basis points (bps) in 2025, including a final 25-bps reduction in December that brought the benchmark rate to 5.25%.
The central bank has come under pressure in recent months after the rupee’s sharp slide against the US dollar, fuelling speculation that policymakers could consider a rate hike to support the currency.
Since the US-Iran war began on 28 February, the rupee has weakened more than 5%, touching a record low of 96.95 per US dollar. In fiscal year 2026 (FY26), the currency fell more than 11%, according to Bloomberg data. It closed at 95.83 against the dollar on Thursday.
The RBI’s decision to stand pat on rates comes despite mounting inflation concerns. Higher global crude oil prices following the , coupled with recent increases in domestic fuel prices, are expected to stoke inflation in the coming months.
In its April policy review, the central bank had projected consumer price inflation at 4.6% and real GDP growth at 6.9% for FY27, based on an assumed crude oil price of $85 per barrel. Brent crude futures are currently hovering at $95 a barrel, according to a Reuters report.
The RBI targets retail at 4%, with a tolerance band of 2 percentage points on either side. Retail inflation rose to 3.48% in April from 3.40% in March.
The government has raised petrol and diesel prices four times since the outbreak of the West Asia war. The increases, which began on 15 May, have cumulatively pushed up retail fuel prices by nearly ₹7.50 per litre across the country.