Why RBI Held Interest Rates Despite Rising Inflation, Slower Growth And Costlier Global Oil Prices

The Reserve Bank of India (RBI) held its repo rate at 5.25% for the third consecutive meeting, revising down its FY27 GDP growth forecast to 6.6% from 6.9% while raising inflation projections to 5.1% due to higher crude oil prices and geopolitical risks. The central bank cited global crude oil prices averaging $95 per barrel, currency pressures, and West Asian tensions as key concerns influencing its cautious stance on monetary policy." "article": "India’s central bank, the Reserve Bank of India (RBI), maintained its repo rate at 5.25% during its latest policy meeting, a decision markets had anticipated. The move came alongside a revised economic outlook, with the RBI lowering its FY27 GDP growth forecast to 6.6% from 6.9%, while raising its inflation estimate to 5.1% from 4.6%. These adjustments reflect growing uncertainty over global crude oil prices, currency volatility, and geopolitical tensions in West Asia. The RBI’s inflation projections for the October-December quarter of FY27 now stand at 5.9%, nearing the upper limit of its 2-6% target range. Governor Sanjay Malhotra attributed this revision to higher crude oil prices, now assumed to average $95 per barrel instead of the earlier estimate of $85. Since India imports 85% of its crude oil, rising global energy costs directly impact transport, fuel, and manufacturing expenses. Domestic fuel prices, including petrol, diesel, and commercial LPG, have already begun reflecting these global trends. The RBI also downgraded its growth forecast, signaling concerns over external risks such as geopolitical developments, commodity prices, and global trade conditions. While India remains one of the fastest-growing major economies, policymakers are prioritizing stability over aggressive growth support. Recent economic indicators show steady urban demand and strong government capital expenditure, but higher input costs and uneven global demand could strain manufacturing and export sectors if commodity prices remain elevated. Currency pressures have further complicated the RBI’s policy calculations. A weaker rupee increases the cost of imports, including crude oil, electronics, and industrial raw materials, exacerbating inflationary pressures. Though the RBI avoids targeting specific exchange rates, it has intervened to stabilize foreign currency inflows amid global volatility. Balancing inflation control with growth support remains the central challenge, as aggressive rate hikes could dampen borrowing and consumption, while prolonged accommodation risks fueling imported price pressures. Financial markets reacted calmly to the decision, reflecting expectations of the RBI’s cautious approach. India’s 10-year government bond yield had eased to around 7% ahead of the announcement, aligning with forecasts that the central bank would prioritize stability over immediate policy adjustments. Economists surveyed by Reuters had anticipated the hold, citing inflation risks tied to crude oil and currency fluctuations as key factors influencing the RBI’s stance.