The Reserve Bank of India (RBI) kept its key interest rate unchanged at 6.5% for the sixth consecutive meeting on Thursday, while warning that escalating geopolitical tensions could pose significant risks to India’s economic stability. The Monetary Policy Committee voted 5-1 to maintain the repo rate, citing persistent inflation concerns and global uncertainty.
Governor Shaktikanta Das noted that while India’s GDP growth projection for FY2025 remains at 7%, “the outlook is clouded by spillover effects from ongoing conflicts.” Analysts interpret this as a reference to the Russia-Ukraine war and Middle East tensions, which have disrupted global supply chains and energy markets.
“Oil price volatility remains our biggest external vulnerability,” said a senior finance ministry official speaking on condition of anonymity. India imports over 80% of its crude oil needs, making it particularly sensitive to energy market shocks.
The RBI’s warning comes as India’s wholesale price index (WPI) inflation rose to 3.4% in February, while consumer price inflation remained stubbornly high at 5.1%. Economists suggest the central bank may be preparing markets for prolonged higher rates. “This isn’t just about inflation targeting anymore,” said Radhika Rao of DBS Bank. “They’re building policy buffers against potential stagflationary shocks.”
Market reactions were muted, with the Sensex closing 0.3% lower. However, bond yields edged up as traders priced in reduced chances of near-term rate cuts. The RBI’s cautious stance mirrors similar positions by the U.S. Federal Reserve and European Central Bank, suggesting synchronized monetary policy prudence among major economies facing common global risks.