The Reserve Bank of India held the repo rate at 5.25% in its first monetary policy decision since the Iran war broke out, even as a two-week ceasefire announced earlier today cooled crude oil prices and boosted rupee.
All 30 economists surveyed by Bloomberg News had expected RBI to keep the benchmark repo rate unchanged after the central bank signaled a prolonged pause at its last meeting, though the outlook has since clouded.
The Iran war has left the six-member Monetary Policy Committee led by RBI Governor Sanjay Malhotra in a tough spot. The rupee’s slide since the conflict began has emerged as a key pressure point, prompting the central bank to take some of its most aggressive steps in over a decade to curb speculative bets against the currency.
The RBI now faces a dilemma over whether to raise interest rates to support the currency or keep borrowing costs low to cushion economic growth.
The Iran ceasefire, however, is set to provide limited succour.
