Mumbai: The Reserve Bank 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 created 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 short-term lending rate or repo rate at 5.25 per cent with a neutral stance.
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 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 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.
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