Mumbai: The Reserve Bank of India kept its key policy rate unchanged on Wednesday, adopting a cautious wait-and-watch stance as policymakers assessed the fallout from the six-week Iran conflict on energy supplies, inflation and growth.

The central bank’s six-member Monetary Policy Committee voted unanimously to keep the benchmark repurchase rate at 5.25 per cent, flagging heightened uncertainty after the West Asia conflict drove crude prices sharply higher, weakened the rupee and disrupted trade flows.

RBI’s policy stance was retained at neutral.

Stating that geopolitical uncertainties had risen since the last policy meeting, RBI Governor Sanjay Malhotra said the rate-setting panel chose to “wait and watch”.

While inflation remains within the target band for now, risks have risen due to volatile oil markets and the possibility of “second-round effects”, which could weigh on demand and delay investment recovery.

The central bank trimmed its growth outlook and warned that the full economic impact of the conflict – particularly through energy costs – will only become clearer in the coming months, reinforcing the case for holding rates steady rather than pre-emptively tightening or easing policy.

RBI projected GDP growth of 6.9 per cent in the current financial year, a drop from an expected 7.6 per cent in the year ended March 31, 2026. Inflation is projected at 4.6 per cent for 2026-27 (April 2026 to March 2027 fiscal), which is within the RBI’s 2 per cent to 6 per cent target range.

For ​the first 11 months of 2025-26, ​for which data is available, average inflation was at 1.95 per cent.

The central bank also, for the first time, offered a forecast for core inflation, which it sees at 4.4 per cent in the current financial year.

The RBI estimates compare with more than 7 per cent GDP growth projected in government estimates released in February, while inflation was expected to remain close to the target of 4 per cent.

The central bank had reduced interest rates by a cumulative 125 basis points since February last year, including a quarter-point cut in December.

“Growth impulses continue to be supported by robust private consumption and investment demand. However, the West Asia conflict is likely to impede growth,” Malhotra said, announcing the MPC decisions.

“Higher input costs associated with an increase in energy prices and international freight and insurance costs, along with supply-chain disruptions that would constrain availability of key inputs for downstream sectors, would impair growth,” he said.

The MPC opined that the intensity and the duration of the conflict and the resultant damage to the energy and other infrastructure add risk to the inflation and growth outlooks.

However, the fundamentals of the Indian economy are on a stronger footing, providing it with greater resilience to withstand shocks now than in the past.

“The economy is confronted with a supply shock. It is prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook,” he said.

Crude oil prices rose above USD 100 per barrel after the US and Israel attacked Iran on February 28, which was followed by Tehran’s sweeping retaliation. The prices fell sharply after a two-week ceasefire was announced early on Wednesday.

Malhotra said elevated crude oil prices could increase imported inflation and widen the current account deficit.

Also, disruptions in energy markets, fertilisers and other commodities may adversely impact industry, agriculture and services, reducing domestic output.

India, which depends on the Middle East for roughly half of its crude oil and the bulk of its cooking gas, has been among the hardest hit by the effective closure of the Strait of Hormuz. The disruption choked a vital energy artery, driving up import costs and straining domestic fuel supplies.

The rupee has fallen about 7 per cent over the past year, making it one of Asia’s worst-performing currencies, as rising oil prices inflated the import bill and increased demand for dollars. The currency’s slide has compounded imported inflation, amplifying the economic shock from the conflict.

“Elevated energy and other commodity prices, as also shocks to the availability of inputs due to disruptions in the Strait of Hormuz, are likely to impact growth in 2026-27,” he said.

On the rupee, he said, despite stronger macroeconomic fundamentals, the Indian currency in 2025-26 depreciated more than the average in the previous years.

After the circulars on restricting offshore speculative activity and the recent de-escalation on the geopolitical front has provided some relief to rupee.

The rupee appreciated 50 paise to 92.56 against the US dollar in early trade on Wednesday.

“Let me reiterate that our exchange rate policy remains unchanged. Specifically, intervention in the foreign exchange market is aimed at smoothening excessive and disruptive volatility without targeting any specific level or band for the exchange rate,” he said.

“The RBI stands committed to this policy and would judiciously contain excessive or disruptive volatility to ensure that self-fulfilling expectations do not exacerbate currency movements beyond what is warranted by fundamentals,” Malhotra said.

He said global economic conditions and sentiments have soured after the outbreak of the West Asia conflict.

“These have adversely impacted the growth-inflation outlook,” he said. “As reiterated before, we shall remain vigilant of the evolving situation and put in place policies that prioritise the best interest of the economy.”