Mumbai: The Reserve Bank on Friday expectedly kept interest rates unchanged for the second time in a row as it weighed the impact of rising energy prices and supply disruptions caused by the West Asia crisis.
The policy decision comes amid a three-month-long conflict in West Asia that has disrupted energy supplies, leading to a surge in crude oil prices and creating fiscal and inflationary pressures for import-dependent countries like India.
Announcing the second bi-monthly monetary policy for the current fiscal, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) has unanimously decided to retain the short-term lending rate or repo rate at 5.25 per cent with a neutral stance.
RBI also revised the real GDP growth to 6.6 per cent from the previous 6.9 per cent.
Announcing the June bi-monthly monetary policy, RBI Governor Sanjay Malhotra said several high-frequency indicators suggest that domestic economic activity has remained largely steady since the outbreak of the conflict.
Overall, the economic situation has broadly exhibited resilience and withstood the conflict spillovers, although the impact of rising cost pressures is becoming visible, Malhotra said.
“Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity. While import diversification in affected commodities is likely to improve supply, it would come at a higher cost,” he said.
The Governor further said that the full impact, however, will depend on the duration of the conflict, time taken for normalisation of supply chains, and the burden-sharing approach among the stakeholders.
The interest rate pause comes even as the Consumer Price Index (CPI) based headline retail inflation has moved closer to the RBI’s medium-term target of 4 per cent at 3.48 per cent in April.
Moreover, there is fear of inflation further inching up due to the expected weak monsoon and fuel price rise in the coming months.
Additionally, the rupee has been depreciating continuously since the beginning of this year. The rupee settled at a record closing low of 96.86 against the USD on May 20, 2026, dropping 33 paise from its previous close.
Once considered among Asia’s more stable currencies, the rupee has now become one of the worst-performing emerging market currencies this year, pressured by a mix of expensive oil, capital outflows, widening trade deficits, and a surging US dollar.
It has depreciated about 7 per cent so far in 2026 and is down roughly 6 per cent since the outbreak of the Iran conflict in late February.
Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February, April, and December 2025 and 50 basis points in June, amidst easing retail inflation.
India’s retail inflation dropped to a historic low of 0.25 per cent in October 2025, marking the lowest level since the CPI series was introduced.
