RBI Maintains Repo Rate Amid West Asia Conflict Concerns
RBI holds repo rate, warns of impact of West Asia conflict on economy
The Economic TimesImage: The Economic Times
The Reserve Bank of India (RBI) has kept the repo rate unchanged at 5.25% while warning that the ongoing conflict in West Asia could impact the domestic economy through higher oil prices and inflation. Growth estimates for fiscal year 2027 have been revised down to 6.9%, reflecting concerns over supply chain disruptions.
- 01RBI maintains repo rate at 5.25% amid geopolitical tensions.
- 02Growth forecast for FY27 reduced to 6.9% due to West Asia conflict.
- 03Inflation projections increased to 4.6% for the full fiscal year.
- 04Higher energy prices and supply chain disruptions pose risks to economic growth.
- 05The Indian rupee strengthened by 0.53% against the US dollar.
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The Reserve Bank of India (RBI) has decided to keep its key policy rate, the repo rate, unchanged at 5.25% in light of heightened geopolitical risks stemming from the ongoing conflict in West Asia. RBI Governor Sanjay Malhotra highlighted that the conflict could lead to increased oil prices, rising agricultural inflation, and weakened remittance inflows, which may adversely affect domestic consumption and investment. The monetary policy committee (MPC) unanimously agreed to maintain a neutral stance, acknowledging the challenges posed by global supply chain disruptions. As a result, the RBI has revised its growth estimate for fiscal year 2027 down to 6.9%, while inflation projections have been increased to 4.6%. The MPC emphasized that the risks to the inflation outlook have escalated due to energy price pressures and potential weather disturbances affecting food prices. Despite these challenges, domestic growth remains supported by robust private consumption and investment demand. The Indian rupee appreciated by 0.53% to 92.51/$, and the benchmark BSE Sensex rose by 3.74% to 77,409.28. To address market conditions, the RBI will allow additional non-bank entities to borrow in the call market and enhance borrowing limits for primary dealers.
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The RBI's decision to maintain the repo rate aims to stabilize economic conditions amid rising inflation and geopolitical tensions. This could mean stable borrowing costs for consumers and businesses, but potential inflationary pressures may affect purchasing power.
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