- India's central bank on Friday held interest rates at 5.25%.
- Rising global energy prices due to the Iran war threaten to raise India's inflation and have weakened the rupee.
India's central bank on Friday held interest rates at 5.25% at a time when surging global energy costs have hammered its currency, while the Iran war risks accelerating inflation.
The Reserve Bank of India was widely expected to keep rates steady, as per economists polled by both Reuters and CNBC. But a minority told CNBC that the central bank could hike
rates to support the rupee, as it trades at record lows against the dollar.
The conflict in the Middle East has
posed a severe risk to the Indian economy, as energy supply disruptions have inflated the country's import bill, piling pressure on the rupee that has already been hit by record foreign investor outflows.
In an attempt at shoring up the currency, Prime Minister Narendra Modi last month urged citizens to pause gold purchases, conserve fuel, and avoid overseas travel.
Policymakers have also taken action to defend the rupee, including selling dollars
through state-run banks to stem its slide, according to a Reuters report. The government has also raised duties to curb demand for gold, a move aimed at conserving foreign exchange reserves.
Despite these measures, the rupee remains fragile. On a year-to-date basis, the rupee has weakened by over 6% against the dollar as per LSEG data, trading at 95.78 against the greenback.
The RBI faces a tough choice as the Iran war
slows the world's fastest-growing major economy, while inflation risks loom. In April, even before the government passed on the fuel price increases, India's inflation rose for the sixth straight month to 3.48% from 3.40% in March.
Though it remains under the RBI target of 4% for now, India is expected to face weather-related disruptions due to El Nino this year that could cause crop shortages and push food prices higher.
Food inflation, a key constituent of India's consumer price index, rose 4.2% in April from 3.87% in March.
As per a Reuters poll, India's economy is expected to grow by 7.2% in January-March quarter, slowing from 7.8% in the previous quarter. The official quarterly GDP print will be released later on Friday.<small>Source: CNBC</small>
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India's cenbank keeps rates steady at 5.25% — flags Middle East worries, currency pressures
CNBC
June 05, 2026
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