MUMBAI: The Reserve Bank has maintained interest rates for the second consecutive time, primarily considering the effects of rising energy prices and supply chain disruptions arising from the West Asia crisis.
This decision takes place amidst a protracted conflict in West Asia that has affected energy supplies, resulting in increased crude oil prices and putting fiscal and inflationary pressure on import-dependent nations like India.
During the announcement of the second bi-monthly monetary policy for this fiscal year, RBI Governor Sanjay Malhotra stated that the Monetary Policy Committee (MPC) unanimously chose to keep the short-term lending rate, or repo rate, stable at 5.25% with a neutral stance.
This pause on interest rates comes even as the Consumer Price Index (CPI) reflects retail inflation nearing the RBI’s medium-term target of 4%, registering at 3.48% in April.
Additionally, there are concerns about possible inflation increases due to anticipated weak monsoons and rising fuel prices in the upcoming months.
Furthermore, the Indian rupee has been on a downward trajectory since the start of 2026. On May 20, the rupee closed at a record low of 96.86 against the USD, falling 33 paise from its last close.
Once considered a stable currency in Asia, the rupee now ranks among the poorest-performing emerging market currencies this year, facing pressures from high oil prices, capital flight, trade deficits, and a strengthening US dollar. It has depreciated approximately 7% in 2026 and around 6% since the onset of the Iran conflict in late February.
Following the MPC’s recommendations, the RBI had reduced the repo rate by 25 basis points in February, April, and December 2025, as well as by 50 basis points in June due to decreasing retail inflation.
India’s retail inflation hit a record low of 0.25% in October 2025, marking the lowest since the CPI series commenced.
