RBI Likely to Hold Rates as ‘Goldilocks’ Phase Ends Amid Iran War Impact

India’s central bank is expected to keep its benchmark repo rate unchanged at 5.25% in the upcoming policy review, as it evaluates the economic fallout from the ongoing Iran conflict. The war has disrupted global energy markets, weakening the rupee and pushing bond yields higher, prompting the Reserve Bank of India (RBI) to prioritize financial stability. Economists widely anticipate that the RBI will focus on liquidity support and currency stabilization rather than immediate rate changes.

Market volatility has intensified, with the rupee sliding past record lows and the 10-year government bond yield climbing to nearly two-year highs. Analysts suggest the RBI may step in through liquidity injections, bond purchases, and foreign-exchange operations to calm markets. While some traders have begun pricing in potential rate hikes, policymakers are expected to treat such measures as a last resort, instead relying on targeted interventions to manage currency pressure and capital outflows.

The economic outlook has become more uncertain, with rising oil prices posing risks to both growth and inflation. Projections indicate that GDP growth could slow to around 6–6.3% if crude prices remain elevated, while inflation may climb closer to 5%. Despite these pressures, experts believe the RBI will maintain a neutral stance, as the threshold for rate hikes remains high unless inflation significantly exceeds its 4% target band over a sustained period.

Pic Courtesy: google/ images are subject to copyright