RBI Holds Repo Rate Steady for Second Time, Citing West Asia Crisis and Inflation Risks

The Reserve Bank of India on Friday maintained the status quo on interest rates for the second consecutive policy review , choosing to hold the repo rate steady at 5.25 per cent as it weighed rising global risks, especially from the ongoing West Asia crisis and volatile energy markets.

Announcing the second bi monthly monetary policy for the current financial year, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously voted to retain the key lending rate and continue with a neutral policy stance . The decision comes at a time when global crude oil prices have surged due to prolonged conflict in West Asia, triggering concerns over imported inflation for economies like India.

The central bank noted that the recent stability in retail inflation , which stood at 3.48 per cent in April , remains close to its medium term target of 4 per cent . However, policymakers cautioned that inflationary pressures could re-emerge in the coming months due to a potentially weak monsoon and higher fuel prices.

The external sector also remains under strain. The Indian rupee has continued to weaken through the year, hitting a record closing low of 96.86 against the US dollar on May 20. The currency has fallen about 7 per cent in 2026 so far , making it one of the weakest performing emerging market currencies amid rising oil import costs, capital outflows, a widening trade deficit and a strong US dollar.

The RBI had previously cut the repo rate by 25 basis points each in February, April and December 2025 , along with a deeper 50 basis point reduction in June 2025 , during a phase of easing inflation. Inflation had earlier fallen to a historic low of 0.25 per cent in October 2025 , the lowest since the current CPI series began.

With global uncertainty persisting, the central bank has opted for caution, prioritising stability over immediate policy easing.