India’s central bank on Wednesday held benchmark interest rates at 5.25% as strong growth allows it room to keep policy tight at a time when the Iran war has raised inflation risk.
Economists polled by Reuters had forecast the policy rate to remain unchanged.
The monetary policy committee thinks the intensity and the duration of the conflict, along with the resulting damage to the energy and other infrastructure, pose a “risk to the [India’s] inflation and growth,” Reserve Bank of India Governor Sanjay Malhotra said in his statement.
India’s consumer inflation rose for a fourth straight month to 3.21% in February, up from 2.75% in the prior month. Malhotra said that the country’s food price outlook remained “comfortable in the near term,” while adding that the jump in energy prices due to the Middle East conflict risk to inflation.
While the country has seen sharp growth and continues to be the world’s fastest growing large economy, expanding at a higher-than-expected 7.8% in the December quarter, the Iran war threatens to crimp its growth as well.
