RBI keeps repo rate unchanged at 5.25%
What's the story
The Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 5.25%. This is the first monetary policy decision since the US-Iran war broke out. The move comes as a two-week ceasefire was announced earlier today, cooling crude oil prices and boosting the rupee. All economists surveyed by Bloomberg had predicted RBI's decision to maintain the benchmark repo rate after a prolonged pause was indicated in its last meeting.
Economic pressures
Rupee's depreciation emerges as major pressure point
The ongoing Iran war has put the six-member Monetary Policy Committee, headed by RBI Governor Sanjay Malhotra, in a tough spot. The rupee's depreciation since the conflict started has emerged as a major pressure point. It has forced the central bank to take some of its most aggressive measures in over a decade to limit speculative bets against the currency.
Policy dilemma
RBI faces dilemma on interest rates
The RBI is now faced with a dilemma of whether to hike interest rates to prop up the currency or keep borrowing costs low to support economic growth. The recently announced Iran ceasefire is likely to provide only limited relief in this regard. The central bank has also kept the standing deposit facility (SDF) unchanged at 5%, and marginal standing facility (MSF) and bank rates at 5.5%.