The RBI kept the repo rate at 5.25% in February and again on April 10, unanimously. Before the war, markets expected cuts in 2026. Oil above $100 and a rupee at record lows changed the calculation.
In December, the RBI cut the repo rate to 5.25%, and with inflation near record lows many economists expected more cuts in 2026. The RBI held in February, waiting for the new inflation series and the Budget. Then came a war in the Gulf, oil above $100 and a rupee at 93. On April 10, the six-member Monetary Policy Committee voted unanimously to hold again.
Inflation that hasn’t arrived yet
Today’s inflation numbers still look comfortable. But monetary policy works with a lag of many months, so central banks set rates for the inflation they expect, not the inflation they see. Oil feeds into transport, fertiliser, plastics and food prices over the following quarter. Cutting rates now, just as that wave approaches, risks having to reverse the decision later, which damages a central bank’s credibility.
The rupee constraint
The second reason is the currency. When India’s interest rates fall relative to America’s, foreign investors have less reason to hold Indian bonds. A cut in the middle of a rupee slide would have encouraged even more money to leave, pushing the currency lower and making imported oil more expensive still.
A central bank cannot cut its way out of an oil shock. It can only avoid making it worse.
The RBI kept its stance neutral, which means it is not committed to either cutting or raising rates next. That flexibility matters. If the ceasefire holds and oil falls, cuts could return to the agenda. If the war resumes, the next move could be the other way. For borrowers, it means EMIs stay where they are, and the era of falling rates that began in early 2025 is, at least for now, on pause.
Sources: RBI Monetary Policy Statements, February 6 and April 10, 2026.
- The RBI held the repo rate at 5.25% in February and again on April 10, with a unanimous vote.
- Oil above $100 threatens to push inflation up with a lag of a few months.
- Cutting rates while the rupee is falling could accelerate foreign outflows.
- The stance stayed neutral, leaving room to move in either direction.
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