RBI Holds Repo Rate at 5.25% as War-Driven Inflation Risks Mount

The Reserve Bank of India (RBI) on Friday kept the repo rate unchanged at 5.25%, opting for caution amid rising inflationary pressures triggered by the ongoing Iran–US conflict and global supply chain disruptions.

The decision was unanimously approved by the six-member Monetary Policy Committee (MPC), which met between June 3 and June 5. The central bank also retained its neutral policy stance, while leaving the Standing Deposit Facility (SDF) rate at 5.00%, and the Marginal Standing Facility (MSF) rate and Bank Rate at 5.50%.

Alongside the rate decision, the RBI revised India's GDP growth forecast for FY2026-27 to 6.6%, projecting quarterly growth of 6.6% in Q1, 6.3% in Q2, 6.5% in Q3, and 6.8% in Q4. However, the central bank warned that prolonged geopolitical tensions, volatile global financial markets, supply-chain disruptions, and weather-related uncertainties continue to threaten the growth outlook.

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The policy announcement comes at a time when global crude oil prices have surged sharply following the Iran–US conflict, pushing up energy costs worldwide and placing additional pressure on the Indian rupee. Inflationary concerns have intensified as higher import costs begin filtering into domestic prices.

RBI Governor Sanjay Malhotra highlighted that while core inflation excluding precious metals remained relatively subdued at 2.1–2.2%, elevated crude oil prices are emerging as a major risk. India's crude basket averaged nearly $110 per barrel during April and May 2026, significantly higher than the assumptions made during the previous policy review.

The central bank noted that rising energy costs have already started impacting domestic fuel prices, while input costs for industries ranging from chemicals and metals to plastics and rubber have also moved higher.

As a result, RBI now projects consumer inflation for FY2026-27 at 5.1%, with inflation expected to accelerate during the second half of the fiscal year. Core inflation is projected at 4.7%.

Despite concerns, the RBI pointed to healthy foodgrain stocks and adequate reservoir levels as factors that could help cushion inflationary pressures in the months ahead.