Reserve Bank of India Freezes Interest Rates Four Consecutive Times Despite Iran-triggered Oil Price Shock... Will Inflation Be Tamed?

▲ Indian Rupee

The Reserve Bank of India (RBI) has kept its benchmark interest rate at 5.25% for four consecutive times, despite inflation concerns stemming from the war in Iran.

According to CNBC on August 5 (local time), the Monetary Policy Committee (MPC) of the Reserve Bank of India unanimously decided to maintain the benchmark interest rate at 5.25%. The monetary policy stance was also kept neutral.

The Reserve Bank of India lowered its average consumer price inflation forecast for the 2026-2027 fiscal year from the previous 5.1% to 5%. The core inflation forecast, excluding food and fuel, was also reduced from 4.7% to 4.3%. In June, consumer price inflation exceeded the target of 4% for the first time in 17 months but remained within the permissible range of 2-6%.

The economic growth forecast was raised from 6.6% to 6.7%. The Reserve Bank of India assessed that domestic demand remains robust. However, it cited insufficient rainfall, trade uncertainties, and geopolitical tensions as risks that could disrupt growth.

Since the war in Iran, rising crude oil prices and the weakening rupee have increased India's inflationary burden. India imports more than 85% of its crude oil demand, making it highly likely that rising international oil prices will translate into higher fuel and transportation costs, ultimately affecting consumer prices. The rupee has fallen by 5.4% this year.

Sanjay Malhotra, Governor of the Reserve Bank of India, stated, “We will allow the exchange rate to be determined by market forces but will curb excessive volatility, speculative movements, and disorderly flows.” The Reserve Bank of India plans to decide whether to adjust interest rates after confirming if rising fuel costs are spreading to broader inflation.

[Key Article Summary]

-The Reserve Bank of India froze its benchmark interest rate at 5.25% for four consecutive times despite inflation concerns stemming from the war in Iran.

-The average inflation forecast was lowered to 5%, and the economic growth forecast was raised to 6.7%.

-The Reserve Bank of India plans to decide on its policy after confirming whether rising international oil prices are spreading into widespread inflationary pressure.

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