RBI Holds Interest Rates Steady Amid Global Headwinds
The Reserve Bank of India (RBI) on Friday kept interest rates unchanged as widely expected and lowered its economic growth forecast. The move comes amid a series of challenges, including disruptions caused by the Middle East war.
Repo Rate and Monetary Policy Stance
The RBI maintained its benchmark repo rate at 5.25% and continued its neutral monetary policy stance. Governor Sanjay Malhotra stated that the central bank opted to remain on hold until the impact of the ongoing conflict became clearer.
Inflation Risks and Economic Outlook
“Although inflation risks have increased, the monetary policy committee decided it is prudent to wait for more clarity,” Malhotra noted. He highlighted that while India entered the current economic turbulence on solid footing, the country now faces rising headwinds from higher oil prices, a disrupted monsoon season, and slower growth in foreign economies.
Revised GDP Forecast
RBI has lowered its GDP forecast for the current fiscal year to 6.6% from the earlier projection of 6.9%, reflecting the impact of global and domestic challenges.
Inflation Pressure
Malhotra warned that consumer price index (CPI) inflation is expected to rise in the coming months due to a combination of higher oil prices from the Iran war and increasing food costs amid a weaker monsoon. CPI inflation for the financial year is now projected at 5.1%, up from the previous forecast of 4.6%.
Impact on Currency Markets
The Indian economy has been affected by a sharp rise in oil prices earlier this year, as the U.S.-Israel war on Iran disrupted key crude supplies. India imports over 80% of its oil, mostly from the Middle East, placing pressure on the rupee. The RBI has intervened multiple times in currency markets to support the rupee from hitting record lows.
