India Raises Interest Rates as Middle East Energy Shock Hits Inflation

2026, October 7

India

India's central bank raised its key policy rate by 25 basis points to 5.5%, the first increase in almost four years, as higher oil prices and weaker monsoon conditions push inflation higher. The Reserve Bank of India also shifted its policy stance from "neutral" to "calibrated tightening", signalling that further increases remain possible.

The decision illustrates how the Middle East conflict is now affecting monetary policy far beyond the region. India remains a relatively strong-growing major economy, with growth forecast at 7.1% for the fiscal year, but policymakers are increasingly concerned that expensive imported energy could feed inflation and weaken the rupee.