India’s cenbank keeps rates steady at 5.25%
A pedestrian walks past the Indian rupee symbol installation outside the Reserve Bank of India (RBI) building in Mumbai on May 17, 2026.
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India’s central bank kept interest rates at 5.25% on Friday, at a time when rising global energy costs are hurting the currency and the Iran war risks accelerating inflation.
The Reserve Bank of India was expected to keep interest rates steady, according to economists polled by Reuters and CNBC.
RBI Governor Sanjay Malhotra said in a statement that “monetary policy has become more cautious” as the global economic outlook continues to be clouded by the “geopolitical stalemate” in the Middle East. He added that “sharply rising energy prices and disruptions in the global supply chain continue to hinder economic activity.”
The conflict in the Middle East has posed a serious risk to India’s economy as disruptions in energy supplies inflate the country’s import bill and put pressure on the rupee, which has already been hit by record foreign investor outflows.
In a bid to support the currency, Prime Minister Narendra Modi last month urged citizens to stop buying gold, save fuel and avoid foreign travel.
Policymakers take action, including selling dollars, to defend the rupee through state banks To halt its decline, according to a Reuters report. The government has also increased duties to limit demand for gold, a move aimed at preserving foreign exchange reserves.
Despite these measures, the rupee remains fragile. Year-to-date, the rupee has depreciated over 6% against the dollar, trading at 95.78 against the dollar, according to LSEG data.
The RBI faces a tough choice as inflation risks loom as the Iran war slows the world’s fastest-growing major economy. In April, even before the government approved fuel price hikes, India’s inflation rose for the sixth consecutive month to 3.48%, from 3.40% in March.
While it remains below the 4% RBI target for now, India is expected to face weather disruptions due to El Niño this year; This could cause crop failures and raise food prices.
Food inflation, a key component of India’s consumer price index, rose 4.2% in April from 3.87% in March.
According to a Reuters survey, the Indian economy is expected to grow by 7.2% in the January-March quarter. This growth slowed from 7.8% in the previous quarter. The official quarterly GDP edition will be published later on Friday.
