India central bank holds rates at 5.25%

India's central bank kept interest rates unchanged on Wednesday as it assessed whether oil-price volatility linked to the Iran war would feed wider inflation pressures.

The Reserve Bank of India said its benchmark repurchase rate, the rate at which it lends to commercial banks, would remain at 5.25% after a unanimous vote by its six-member panel.

Retail inflation rose to 4.4% in June, breaching the central bank's medium-term target of 4% for the first time in 17 months, while remaining within the RBI's 2%-6% tolerance band.

RBI governor Sanjay Malhotra said economic growth was supported by resilient domestic demand and that inflation was not broad-based yet.

Malhotra said headline inflation was projected to increase mainly because of supply-side pressures from food and fuel. He said there was a need for more clarity on inflation's path and composition before any policy action.

The central bank is also weighing pressure on the Indian rupee, which slid to a record low before the RBI's June policy meeting. The RBI then announced measures aimed at attracting dollar inflows, including a deposit scheme for non-resident Indians.

India normally sources about half of its crude through the Strait of Hormuz, which has been effectively closed since the Middle East conflict began on February 28. Analysts say that makes New Delhi among the economies most vulnerable to a global energy shock, as higher crude and fertiliser prices push up India's import bill.