India’s central bank holds rates as Iran war upends economic outlook

[MUMBAI] The Reserve Bank of India kept its key policy rate unchanged on Wednesday (Apr 8) as it awaits clearer evidence of the impact from the Iran war on the South Asian nation’s economy.

The RBI’s six-member monetary policy committee voted to keep the repo rate steady at 5.25 per cent.

All six members of the rate panel, which includes three central bank officials and three external appointees, voted to hold rates. The MPC also decided to continue with the “neutral” stance.

Sixty-nine of 71 economists in a March 23–26 Reuters poll forecast the Reserve Bank of India would keep the benchmark repo rate unchanged.

Since the last policy meeting, geopolitical uncertainties have risen, RBI governor Sanjay Malhotra said while announcing the policy decision. While inflation remains in check, upside risks have risen and the possibility of second round effects renders the outlook uncertain, he said.

High frequency indicators suggest growth momentum remains robust but the war in the Middle East is likely to impact this momentum, the governor said.

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India’s economy was forecast to grow by more than 7 per cent in the fiscal year that began on April 1, according to government estimates, while inflation was expected to remain close to the central bank’s target of 4 per cent.

But a sharp rise in oil prices since the outbreak of conflict between Iran and US and Israel is expected to bring down growth sharply and spur inflationary pressures.

The concerns have been reflected in the financial markets, with equities and bond benchmarks declining and the rupee hitting a record low since the war began at the end of February. REUTERS