India’s central bank breaks three-year pause with rate hike amid Middle East war

Mumbai, October 7 — For the first time in more than three years, India's central bank, the Reserve Bank of India (RBI), raised interest rates amid concerns over inflation and a weakening rupee caused by the Middle East conflict. The benchmark repurchase rate, which determines the level at which the central bank lends to commercial banks, was increased by 25 basis points to 5.50 percent following a unanimous vote by a six-member panel.

This move puts the RBI in line with several other central banks worldwide that have increased rates to control inflation or strengthen their currencies. Since the outbreak of the Iran war in February, the RBI had remained passive, waiting to evaluate the impact of volatile oil prices on India's fast-growing economy. However, despite a resilient GDP growth last quarter, the central bank has shifted focus to higher costs, particularly food and energy imports, as India relies heavily on foreign energy sources.

Retail inflation rose to 4.82 percent in August, the third consecutive month that exceeded the RBI's medium-term target of four percent, with inflationary pressures extending beyond food and transport. The Indian rupee has also faced pressure, trading near record lows over the past week, prompting the RBI to deploy various measures to attract dollar inflows, including a deposit scheme for Indian expatriates that attracted around US$127 billion.