The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) Wednesday left the main policy instrument, the repo rate, unchanged at 5.25%.
The move underscores a cautious and calculated approach as economic risks resulting from the West Asia conflict have led to heightened uncertainty for both the inflation and growth outlook despite the US and Iran agreeing to a two-week ceasefire.
“The ceasefire, to some extent, has been taken into account. The whole implications… we’ll come to know. But the ceasefire has been taken into account in the monetary policy decision,” the central bank Governor Sanjay Malhotra told reporters in a press conference.
The conflict had led to a sharp rise in crude oil prices and broader energy supply disruptions after Iran closed the Strait of Hormuz. This unleashed fresh price pressures, pushing up input costs, straining supply chains, and raw material shortages across industries.
While the Strait of Hormuz has been re-opened, questions remain over the status of the energy infrastructure of the Gulf nations.
“The MPC opined that the intensity and the duration of the conflict, as well as the impact of the conflict, have resulted in damage to the energy and other infrastructure at risk to the inflation and growth outlook,” Malhotra said.
Given the risks, the central bank has turned more cautious, projecting India’s GDP growth to decline to 6.9% in FY27 from 7.6% in FY26. On the other hand, headline retail inflation is set to average 4.6% in the current fiscal. In FY26, Consumer Price Index inflation averaged around 2%. While risks to the growth outlook are on the downside, those for the inflation forecasts are on the upside.
“Upside risks to inflation outlook have increased,” Malhotra said. “Elevated energy and other commodity prices, as well as shocks to availability of inputs due to disruptions in the Strait of Hormuz are likely to impact growth in FY27,” he said.
Oil and exchange rate
The RBI has made some changes to the assumptions that underpin its growth and inflation forecasts.
For one, it now expects the price of India’s crude oil basket to average $85 per barrel in FY27 as against its previous assumption of $70/bbl, disclosed in October 2025. In March, the price of the crude oil basket price had surged 64% from February to $113/bbl after averaging below $70/bbl for seven months in a row. In the first week of April, the average price had risen even further to $129/bbl, according to petroleum ministry data.
On the exchange rate front, the RBI has assumed that the rupee will average 94-per-dollar in the current fiscal. In October 2025, it had assumed an exchange rate of 88-per-dollar for the second half of FY26.
However, a delay in the conclusion of the India-US trade deal sparked foreign investment outflows and pushed the rupee past 90- and 91-per-dollar in December.
A second wave of risk-aversion caused by the war led to the rupee spiralling past 92, 93, 94, and 95-per-dollar in March.
On Wednesday, it closed at 92.58-per-dollar, with Malhotra saying in his address that the RBI’s exchange rate policy has not changed.
“Specifically, intervention in the foreign exchange market is aimed at smoothening excessive and disruptive volatility without targeting any specific level or band for the exchange rate. This is consistent with our long-standing policy of the exchange rates being market-determined. The RBI stands committed to this policy and would judiciously contain excessive or disruptive volatility to ensure that self-fulfilling expectations do not exacerbate currency movements beyond what is warranted by fundamentals,” the governor said.
Commenting on the RBI’s recent measures to curb speculative bets against the rupee, he said they were not going to remain in place forever.
Future rate trajectory
When asked about rate hikes in the future, he said the risks are evolving, so it is very difficult to make predictions.
Keeping the policy rate unchanged at 5.25% would come as a significant relief for borrowers across various segments of the economy. When the RBI maintains its repo rate, it generally means that lending rates offered by banks and financial institutions are unlikely to rise in the near term. As a result, equated monthly installments on various loans — homes, vehicles, personal needs, corporate financing or small businesses — are expected to remain stable. Deposit rates are also expected to remain unchanged as of now.
By holding rates steady, the MPC signalled that it is closely monitoring economic conditions before further adjustments to ensure that both borrowers and lenders operate in a relatively stable environment.
“Our baseline view remains for the RBI to keep its policy rate unchanged at 5.25% through FY27,” Lavanya Venkateswaran, Senior ASEAN Economist at Singapore’s OCBC Bank said.
Malhotra used the word ‘fundamentals’ five times in his address, arguing that the macroeconomic fundamentals are “on a stronger footing at the current juncture than in previous crisis episodes as well as relative to many other economies, providing it with greater resilience to withstand shocks”, with high-frequency indicators till February indicative of strong momentum in economic activity.
By holding rates steady, the MPC signalled that it is closely monitoring economic conditions before further adjustments to ensure that both borrowers and lenders operate in a relatively stable environment.
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