RBI Policy: Repo Rate kept unchanged at 5.25%, Inflation Outlook rises

5 Jun 2026 , 12:40 PM

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on June 5, 2026, decided to keep the benchmark repo rate unchanged at 5.25%, maintaining a cautious stance amid rising geopolitical tensions, elevated crude oil prices, and global economic uncertainty.

RBI Governor Sanjay Malhotra announced the policy decision after the MPC’s three-day meeting, emphasizing that while the Indian economy remains resilient, inflation risks have increased due to developments in West Asia and global commodity markets.

RBI Keeps Repo Rate Unchanged

The six-member MPC voted to maintain the policy repo rate at 5.25%, allowing the central bank to closely monitor inflationary pressures while supporting economic stability.

Other key policy rates were also left unchanged:

• Standing Deposit Facility (SDF) Rate: 5.00%
• Marginal Standing Facility (MSF) Rate: 5.50%
• Bank Rate: 5.50%

The decision signals RBI’s intent to balance growth concerns with the need to keep inflation under control.

GDP Growth Forecast Lowered for FY27

Reflecting increasing global economic headwinds, the RBI revised India’s GDP growth projection for FY27 downward to 6.6%, compared to its earlier estimate of 6.9%.

The central bank cited:

• Weak global demand
• Geopolitical tensions
• Trade uncertainties
• Volatility in commodity markets

as key factors affecting the growth outlook.

Despite the downgrade, RBI noted that India’s domestic demand remains robust and continues to provide support to economic activity.

Inflation Projection Raised to 5.1%

The RBI increased its Consumer Price Index (CPI) inflation forecast for FY27 to 5.1%, up from the earlier estimate of 4.6%.

The upward revision primarily reflects:

• Rising crude oil prices
• Supply-side uncertainties
• Impact of the ongoing West Asia conflict

Governor Malhotra reiterated that the RBI remains committed to its medium-term inflation target of 4% and will continue to take necessary measures to ensure price stability.

India Remains Resilient Amid Global Challenges

According to the RBI, India continues to be better positioned than many global economies despite external shocks.

The central bank highlighted several factors strengthening economic resilience:

• Government support for MSMEs
• Initiatives to boost exports
• Expansion of domestic energy production
• Import diversification strategies

These measures have helped reduce vulnerabilities arising from global disruptions.

RBI Announces Measures to Attract Foreign Capital

Expansion of Fully Accessible Route (FAR)

To deepen foreign participation in India’s debt markets, RBI expanded the Fully Accessible Route (FAR) by including all newly issued:

• 15-year Government Securities
• 30-year Government Securities
• 40-year Government Securities

The move allows foreign investors to access a broader range of government bonds without investment restrictions.

Higher Investment Limits for NRIs and OCIs

The RBI also increased investment limits for:

• Non-Resident Indians (NRIs)
• Overseas Citizens of India (OCIs)

Additionally, similar equity investment facilities have been extended to all individual investors residing outside India without requiring SEBI registration, potentially boosting foreign portfolio inflows.

Support for Overseas Borrowing

To facilitate foreign currency funding, the RBI extended the concessional forex swap facility until September 30, 2026.

The facility will support:

• External Commercial Borrowings (ECBs) raised by public sector entities
• Banks mobilizing FCNR deposits

Importantly, the RBI will bear the hedging costs under this arrangement, reducing borrowing expenses and encouraging foreign currency inflows.

Export and External Sector Measures

The central bank restored the export realization period to 9 months from the temporary 15-month relaxation provided earlier.

RBI expects the measure to:

• Strengthen India’s balance of payments position
• Improve export proceeds realization
• Enhance foreign exchange inflows
• Support government borrowing programs

RBI Clarifies Position on the Rupee

The RBI reiterated that it does not target any specific exchange rate level or band for the Indian rupee.

Governor Malhotra stated that exchange rates will remain market-determined, with RBI intervention limited to managing excessive volatility arising from speculation or market uncertainty.

Market Reaction to RBI Policy

Indian equity markets remained largely stable following the policy announcement.

• Nifty 50 traded around 23,414, down marginally by 3-5 points.
• Nifty Bank traded near 54,529, gaining around 230 points.
• Sensex traded around 74,371, up approximately 16-20 points.

The muted reaction indicates that market participants had largely priced in the status quo on interest rates.

What Investors Should Watch

Positives

• Stable interest rates support borrowing activity and investment sentiment.
• Measures aimed at attracting foreign capital could boost government bond demand.
• Increased foreign participation may support equity markets and rupee stability.

Risks

• Higher inflation projections may delay future rate cuts.
• Lower GDP growth estimates suggest moderation in economic momentum.
• Rising crude oil prices and developments in West Asia remain significant risks for both inflation and growth.

Conclusion

The RBI’s June 2026 monetary policy reflects a careful balancing act between supporting economic growth and containing inflation. While the repo rate remains unchanged at 5.25%, the central bank has raised inflation forecasts and lowered growth expectations amid global uncertainties.

At the same time, measures aimed at increasing foreign capital inflows and strengthening the external sector underscore RBI’s confidence in India’s long-term economic resilience. Going forward, inflation trends, crude oil prices, and geopolitical developments will remain key factors influencing the central bank’s policy trajectory.