India central bank holds rates, assesses war

India’s central bank left interest rates unchanged on Wednesday as it assessed the fallout of the Middle East war on the world’s fastest-growing major economy.

The Reserve Bank of India (RBI) said the benchmark repurchase rate, the level at which it lends to commercial banks, would remain at 5.25 percent after a unanimous vote by a six-member panel.

A majority of analysts had forecast a pause, given that the bank reduced rates by a cumulative 125 basis points over 2025, before stopping in February.

But some experts had not ruled out a surprise move.

Since beginning on February 28, the Iran war has battered India’s rupee, raised inflation risks and clouded New Delhi’s economic growth outlook.

But a two-week ceasefire announced by US President Donald Trump on Tuesday, and a temporary re-opening of the critical Strait of Hormuz, may help reduce fuel pressures and ease cooking gas shortages in the world’s most populous nation.

RBI governor Sanjay Malhotra said the monetary policy committee acknowledged risks to India’s inflation outlook but added that the economy’s fundamentals gave it “greater resilience to withstand shocks now than in the past”.

“It felt, therefore, prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook,” Malhotra said in a televised address from Mumbai. India, which depends on the Middle East for a significant chunk of its oil and liquefied petroleum gas needs, was one of the “most vulnerable economies within Asia to an energy price shock”, according to analysts at Nomura.

The threat of elevated crude oil prices pushed foreign investors to offload more than $12 billion worth of Indian shares in March.

This, in turn, heaped further pressure on a weakened rupee, which has declined more than seven percent over the past year, making it one of Asia’s worst forex performers.

However, it has recovered after the RBI in recent weeks took drastic steps to curb speculative trading in the currency market.