RBI Holds Rates at 5.25% Amid Geopolitical Turmoil; Governor Malhotra Warns of West Asia Conflict Risks

Consequently, the standing deposit facility (SDF) rate remains at 5 per cent, while the marginal standing facility (MSF) rate and the Bank Rate stay firm at 5.50 per cent. The Bi-monthly Meeting of the committee, which began on Monday under the chairmanship of the Governor, concluded with a rigorous assessment of the nation’s macroeconomic health. The MPC has projected GDP growth for the last financial year at 7.6 per cent, while forecasting a moderate 6.9 per cent for the current fiscal. Simultaneously, the RBI has projected that CPI inflation for the current financial year will settle at 4.6 per cent.

Governor Malhotra underscored the fragility of the current environment, stating, "Persistently elevated energy prices due to the West Asia conflict and possible El Niño conditions pose upside risks to inflation." Regarding the escalating West Asia conflict, the RBI has adopted a "wait-and-watch" approach, citing rapidly changing circumstances and an evolving growth-inflation outlook. Accordingly, the MPC voted to keep the policy rate unchanged even as it remains vigilant, closely monitoring incoming information and assessing the balance of risks.

The Governor warned that the West Asia conflict will adversely impact growth, noting that higher input costs—driven by surging energy prices, international freight, and insurance costs—alongside supply-chain disruptions, could constrain key inputs for downstream sectors. Despite these headwinds, Mr. Malhotra emphasized that the fundamentals of the Indian economy are on a stronger footing, providing greater resilience to withstand shocks than in previous years. He further highlighted that government measures supporting exports and protecting supply chains should mitigate the conflict's adverse impacts.

Addressing the external sector, the Governor noted that despite stronger macroeconomic fundamentals, the Indian rupee in 2025-26 depreciated more than the average of previous years. He reiterated that the exchange rate policy remains unchanged, stating that intervention in the foreign ex

change market is aimed solely at smoothening excessive and disruptive volatility without targeting any specific level or band. "This is consistent with our long-standing policy of the exchange rates being market-determined," Mr. Malhotra added, affirming that the RBI remains committed to containing volatility to ensure self-fulfilling expectations do not exacerbate currency movements beyond what is warranted by economic fundamentals.