RBI Holds Rate at 5.25%, Warns on Hormuz Risks
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- RBI's MPC unanimously voted to hold the repo rate at 5.25% with a neutral stance, in line with market expectations, as the West Asia conflict and resulting energy price spike dominated the policy commentary.
- Governor Malhotra warned that the conflict's 'intensity and duration' and damage to energy and other infrastructure pose risks to both inflation and growth outlooks, with risks to projections tilted to the downside amid elevated geopolitical uncertainty.
- The RBI projected real GDP growth at 6.9% and headline inflation at 4.6% for FY27, based on crude oil at $85/barrel this fiscal year and $75/barrel next — both within the 2-6% target band — and for the first time also projected core inflation at 4.4%.
- Malhotra specifically flagged disruptions related to the Strait of Hormuz as a risk that could weigh on 2026-27 growth, noting the conflict could transmit through higher crude prices, supply disruptions, and global financial spillovers.
- Indian markets rallied on ceasefire news: benchmark bond yields fell 15 basis points to 6.89%, the rupee strengthened 40 paise to 92.58 per dollar, and the Sensex jumped 3.95% to close at 77,562.
- Malhotra cautioned that prolonged supply shocks could eventually translate into weaker demand, while economists remained cautious on the policy outlook.
Why it matters: The RBI's first-ever core inflation forecast (4.4%) signals a more granular approach to managing energy shocks from the West Asia conflict, with crude assumed at $85/barrel this fiscal year. With the neutral stance and explicit Hormuz disruption warnings, the central bank has signaled it will hold at 5.25% rather than cut — keeping borrowing costs elevated even as bonds, the rupee, and equities whipsaw on every geopolitical headline.
