US-Iran conflict, El Nino: Why RBI did not hike repo rate despite headwinds
Indeed, RBI governor Sanjay Malhotra has acknowledged that the conflict in West Asia continues to weigh on the global economy by disrupting critical trade routes and supply chains, increasing market volatility and weakening business confidence. But the biggest factor for keeping repo rate unchanged was that while inflation has risen, the impact of cost pressures has not been widespread.
The Reserve Bank of India (RBI) maintained its repo rate unchanged at 5.25% during its August monetary policy meeting, despite global inflation trends and the ongoing US-Iran conflict. RBI Governor Sanjay Malhotra, leading the Monetary Policy Committee, stated that while headline Consumer Price Index (CPI) inflation rose above the target, it was limited to fuel and food prices, without widespread impact.
The committee remained neutral in its policy stance, with expectations of higher headline inflation peaking in Q3 before easing. Despite growth being robust, the RBI forecasted slower growth in 2026-27 due to uncertainties surrounding El Nino, the West Asia conflict, and global trade policies. The central bank emphasized the need for greater clarity on the inflation path before taking any further action.
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