India central bank holds rates despite Mideast conflict

MUMBAI  

India's central bank left interest rates unchanged on June 5, despite the Middle East conflict threatening to stoke inflation and heap pressure on a weak rupee.

The Reserve Bank of India (RBI) said the benchmark repurchase rate, the level at which it lends to commercial banks, would remain at 5.25 percent.

Central banks in emerging and frontier markets from Indonesia to Sri Lanka have hiked rates in recent weeks to bolster their currencies and tamp down inflationary pressures.

New Delhi has sought to shield Indians by both limiting and staggering fuel price hikes, which has left inflation still below the RBI's medium-term target of four percent.

A majority of analysts had projected the bank to stand pat.

RBI governor Sanjay Malhotra said the monetary policy committee acknowledged higher energy prices and global supply constraints were having "adverse spillovers" on economic activity, but that domestic demand remained "resilient."

"Although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge," Malhotra said.

India, the world's most populous nation and third-largest buyer of oil, normally sources about half of its crude through the Strait of Hormuz, which has been effectively blocked by Iran since the beginning of the Middle East conflict on February 28.

Analysts say this makes New Delhi among the most vulnerable economies to a global energy shock.