Why has RBI kept interest rates unchanged despite mounting inflation risks?

India’s Reserve Bank of India’s Monetary Policy Committee (MPC) decided on Friday to maintain the repo rate at 5.25%, despite escalating inflationary pressures driven by surging crude oil prices and shortages linked to the West Asia conflict. The decision means interest rates on home, vehicle, corporate, and personal loans will remain steady, providing stability for borrowers amid economic uncertainty. The MPC revised its growth forecast downward from 6.9% to 6.6% for the current financial year and increased its inflation projection from 4.6% to 5.1%. RBI Governor Sanjay Malhotra highlighted that global conditions have worsened since April, with prolonged disruptions in supply chains and elevated energy prices weighing on economic activity and inflation. The central bank cited risks from geopolitical tensions involving the US, Israel, and Iran, which threaten to sustain high energy costs and disrupt global trade. These factors, combined with adverse weather and capital outflows, are pressuring India’s forex reserves and rupee. The MPC emphasized the need for continuous assessment of evolving developments to guide future policy responses. By keeping rates unchanged, the RBI adopted a cautious ‘wait-and-see’ approach, avoiding further stimulus while maintaining predictable borrowing costs for businesses and individuals. Stable interest rates will help businesses plan investments with greater confidence, though the economy will not benefit from additional stimulus. The decision follows a broader trend of global central banks balancing inflation control with growth concerns. The RBI’s Annual Report warned that short-term growth and inflation could be affected by energy price hikes, supply chain issues, and financial market instability.