RBI MPC Meeting 2026 Live Updates: Repo rate unchanged at 5.25%, policy stance neutral; GDP growth outlook revised down to 6.6%, says Sanjay Malhotra

The RBI’s decision to hold the repo rate at 5.25% was widely expected. The more important message from this policy is that India’s key macroeconomic challenge is no longer domestic demand—it is the external sector. While inflation remains below target today, the RBI has raised its inflation outlook to 5.1%, with inflation projected to approach 6% later in the year. This is due to rising oil prices, supply-chain disruptions, and an uncertain monsoon. These are largely supply-side pressures that monetary policy alone cannot effectively address.

At the same time, growth has moderated but remains resilient, supported by healthy manufacturing activity, strong credit growth, and continued government capital expenditure. The economy is slowing at the margin, not stalling.

What stands out is the RBI’s growing focus on external vulnerabilities. Higher oil prices threaten to widen the current-account deficit, while persistent foreign portfolio outflows and elevated global uncertainty could make external financing more challenging. The central bank’s accompanying measures to attract capital and strengthen external financing conditions signal a clear shift in priorities.

This is not the posture of a central bank primarily concerned with domestic inflation. It is the response of a central bank preparing for potential external stress. The real debate is no longer whether rates move by 25 basis points, but whether India can successfully navigate a world of expensive oil, geopolitical uncertainty, and volatile capital flows. The rate pause was expected; the RBI’s quiet focus on protecting the external account is the story that will likely shape monetary policy in the months ahead, says Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.

The Reserve Bank of India has adopted a pragmatic "wait-and-watch" strategy, holding the repo rate unchanged at 5.25% amidst a highly turbulent global backdrop. While domestic demand, private consumption, and services exports have exhibited strong resilience, intensifying global conflicts, supply disruptions, and elevated energy prices are beginning to weigh on economic activity. Compounded by a sub-normal monsoon forecast and El Niño risks, the RBI chief noted considerable risks to both growth and inflation, choosing to remain strictly data-dependent until greater clarity emerges.

Reflecting these headwinds, the central bank downgraded its FY27 Real GDP growth projection to 6.6% (down from 6.9%) and raised its FY27 inflation outlook to 5.1%. Although current CPI inflation remains below target, baseline projections indicate it could firm up to the upper range of the tolerance band by Q3FY27 due to an uncertain food price outlook and potential second-round generalization effects. The impact of these supply shocks is expected to noticeably weigh on the economy from Q4 onwards as higher energy costs pass through to retail products.

In a highly positive move for the capital markets, the government has exempted Foreign Institutional Investors (FIIs) from capital gains tax on any interest earned from government securities. This fiscal cushion arrives at a crucial time, offering a strong shield to domestic markets as the RBI chief warned of volatile forex markets driven by shifting global sentiments, says Sumit Singhania, Head of Research- Bajaj Broking.

RBI expectedly kept the rate and stance unchanged, while highlighting the amplified risks on the inflation front. We expect 50bp of rate hike beginning in October. On the positive side, the measures taken by the RBI to attract capital would help ease pressure on the INR,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

RBI as widely expected has kept the interest rates unchanged with a continuation of the neutral stance, signifying the continued faith in domestic growth and demand while acknowledging that the global uncertainties do exist and will be closely watched to be nimble on future policy actions.

RBI governor acknowledged the concern around exchange rate volatility stating that disorderly market conduct and speculation will be dealt with through necessary interventions without trying to target a specific exchange rate. This is important given the US governments focus to tag countries as currency manipulators when they see market intervention from the relevant countries. This communication helps protect sovereignty while respecting theme of free markets, says Vivek Iyer, Partner and Financial Services Risk Leader, Grant Thornton Bharat.

“We shall remain vigilant, and we are fully prepared to do whatever it takes to preserve an orderly market conditions. To conclude, global economic conditions and sentiments continue to be frayed without any meaningful resolution of the West Asia conflict, while these have adversely impacted the domestic growth inflation outlook. The economy at this point is relatively strong.

We shall put in place policies to meet the challenges while taking measures to further strengthen the macroeconomic fundamentals of the country,” said RBI governor Sanjay Malhotra.

“I have often reiterated a word on our exchange rate policy. It continues to remain unchanged. We do not target any specific level or band, instead we allow the exchange rate to be determined by market forces.

Our experience, however, suggests that it may sometimes witness movements often caused by speculative pressures, especially in the wake of heightened uncertainty, some of which we witnessed recently, which are not in sync with the fundamentals and are disruptive of economic activity.

While our objective is not to resist market-driven adjustments, we shall curb excessive volatility and prevent disorderly market movements. While our foreign exchange reserves provide us with sufficient buffer against external shocks, we have a very broad range of regulatory and market-based instruments to respond effectively as may be required,” said RBI governor Sanjay Malhotra.

Concessional forex swap will be provided for about four months till 13 September 2026 to incentivize ECB's external commercial borrowings by public sector undertakings.

First, for government securities under FAR, which is the fully accessible route, we are expanding the universe of specified securities by including all new issuances of 15, 30, and 40 year tenure G-Secs. Till now only securities securities, government securities up to 10 year tenure were included.

India's Forex reserves stood at a very healthy $682.2 billion. These are adequate in terms of the standard metrics of reserve adequacy, with an import cover of about 11 months and external debt cover of 89 plus percent,” said RBI governor Sanjay Malhotra.

“The external sector has successfully navigated the challenges of elevated tariff and trade-related uncertainties last year amidst a turbulent global economic environment. The surge in energy prices and persistent trade policy uncertainties continue to pose upside risks to India's current account deficit this year. Services, trade surplus, and inward remains remittances, however, are expected to provide some comfort,” said RBI governor Sanjay Malhotra.

“CPI inflation for this year now is projected to be at 5.1% about 50 basis points more than earlier projected. Q1 at 4.2%, Q2 at 5.1%, Q3 at 5.9% and Q4 at 5.4%. These forecasts are subject to upside risks due to heightened uncertainty, because of a variety of reasons, global supply chain disruptions, global commodity price shocks, uncertainty about the spatial and temporal distribution of the southwest monsoon, and risks from El Nino conditions getting developed,” said RBI governor Sanjay Malhotra.

“Real GDP growth for this year is now projected at 6.6%. We had earlier projected 6.9%. Now projected at 6.6% for Q1, at 6.3% for Q2, at 6.5% for Q3 and Q4 at 6.8%. Prolonged global supply chain disruptions, volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook,” said RBI governor Sanjay Malhotra.

“Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity, while import diversification in affected commodities is likely to improve supply. It would still come at a higher cost.

The full impact, however, will depend on the duration of the conflict, the time taken for normalization of supply chains, and the burden sharing approach among the various stakeholders. The pass through of higher energy prices to retail products is also becoming evident.

Additionally, the projected deficiency in the southwest monsoon will have implications for agriculture production and rural demand. However, the programs and initiatives for crop diversification, water harvesting and conservation, climate resilient practices, and short duration crops, among others, are expected to mitigate the impact.

Sustained momentum in services continuing impact of GST rationalization and broadly stable employment conditions should continue to support urban consumption, even though rising inflation could be a drag on the purchasing power of households,” said RBI governor Sanjay Malhotra.

“The second advanced estimates released by NSO placed India's GDP growth for last year at 7.6% .This is owing to strong expansion in private consumption, as well as fixed investment, robust performance of manufacturing and services sectors were the growth drivers from the supply side.

As per several high frequency indicators, domestic economic activity remained largely steady even since the outbreak of the conflict. India's manufacturing and services PMI further suggest that both sectors continue to be resilient, and business expectations are still positive on the demand side.

Private consumption, aided by discretionary spending, has remained resilient so far, fixed investment has also maintained its momentum, despite cost pressures, merchandise exports recorded strong growth in April this year. This is not withstanding elevated freight and insurance costs ,” said RBI governor Sanjay Malhotra.

“Although risks of higher inflation have amplified the MPC felt it would be prudent to wait for greater clarity to emerge. Accordingly, the MPC voted to keep the policy repo rate unchanged. At the same time, the MPC will continue to remain data dependent and closely monitor the developments, including supply side pressures getting embedded in the general price level and inflation expectations. As mentioned, the MPC also decided to retain the neutral stance ,” said RBI governor Sanjay Malhotra.

“CPI inflation remains below the target, despite global shock, as the pass through to domestic prices has been limited, while the baseline projections point towards headline inflation firming up towards the upper tolerance level,” said RBI governor Sanjay Malhotra.

“The global environment has deteriorated since the last policy meeting in April, with the conflict lingering amidst a fragile truce. The adverse implications of the extended disruption in supply chains and elevated energy prices are reflected in the moderation of growth and increase in inflation projections from the April policy “, said RBI governor Sanjay Malhotra.

“The Monetary Policy Committee met on the third, fourth, and fifth of this month to deliberate and decide on the policy repo rate after a detailed assessment of the evolving macroeconomic and financial developments, and the outlook, the MPC voted unanimously to keep the policy repo rate under the lap unchanged at 5.25%,” said RBI governor Sanjay Malhotra.

“It is important to not only confront and address these challenges, but also at the same time take this as an opportunity to further enhance our resilience, global economic outlook re outlook remains clouded by the continuing geopolitical impasse in West Asia as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity, said RBI governor Sanjay Malhotra.

“Market expectations currently price in a potential 25–50 basis point rate hike, though recent RBI actions suggest a preference for liquidity management and currency stabilisation over immediate tightening. For the upcoming June policy, the RBI is expected to maintain rates, while possibly adopting a more hawkish forward guidance stance, though the official policy stance is likely to remain unchanged in the near term. A rate hike remains contingent on sustained macro stress. If crude prices remain above $100 per barrel for an extended period, inflationary pressures could force the RBI to consider a cumulative 50 bps hike by August, although this is not the base case at present,” says Vinay Pai, MD & Head of Fixed Income, Equirus Capital.

“India’s policy rates are at an inflection point. While the case for a tighter monetary policy is strengthening, the timing of the move is a matter of debate. 

Since the April rate review, elevated oil prices have triggered a further correction in INR asset markets, with the rupee depreciating by around 3.2% since April, and a cumulative -6% yet far in CY26. Compared to the revised macro assumption of INR 94/USD in the April’s Monetary Policy Report, the currency neared a record low of 97/USD earlier this month before recovering ground on a pullback in oil prices amid ceasefire hopes and speculation about potential fresh measures to support the rupee.

At the upcoming rate review, markets will weigh whether the RBI MPC (monetary policy committee) is inclined to use policy rates to defend the currency. In our view, the MPC is likely to prioritise the key mandate i.e. inflation to decide on the path ahead, while relying on other instruments to stabilise the currency and bond markets. Headline CPI inflation is tracking the midpoint of the 2-6% target range in May, after a below consensus print in April. Fuel prices have been raised, but the cumulative increase of around 7% is measured. In the absence of significant spillovers into core inflation as yet and with inflation expectations still broadly anchored, the central bank might reason that the second round effects are not evident at this juncture, backing a wait-and-watch approach. Inflation forecasts are, nonetheless, likely to be revised up, preparing the ground for a policy shift, subject to exogenous shocks. We expect the guidance to be cautious, with a pause on rates at the forthcoming meeting.

The case to hike rates has, nonetheless, strengthened, with a higher likelihood of a shift in 2HCY26. As global rates rise, a rate hike will be needed to attract rate sensitive flows if the conflict continues. Add to this, the inflation rationale will also gain momentum amid successive pump price increases (more expected), a pickup in food, impact of prevailing heatwave conditions and rising business inflation expectations, all of which point to mounting underlying price pressures. If CPI inflation overshoots 5% yoy in FY27 (DBSf: 4.9%), the current repo rate at 5.25% is low, suggesting a 75-100bp rate increase in 2HCY26 is warranted. We will wait to hear from the RBI MPC before revising our forecast for rest of FY27,” says Radhika Rao, Senior Economist & Executive Director at DBS Bank.

Mythri Kumar, Co-founder and CEO of TimbuckDo, said a stable interest-rate environment would support business confidence, encourage fresh investments, and create additional opportunities for students, freelancers, and emerging businesses that are increasingly contributing to economic growth.

Kumar said that as entrepreneurial activity and participation in flexible and gig-based work continue to expand across India, he hopes the Monetary Policy Committee will retain a stance that remains supportive of growth.

Pranjul Bhandari, Chief India Economist at HSBC, believes the June policy decision could be closely balanced. However, she expects the repo rate to remain unchanged as inflation continues to stay below the target level, financial conditions are already tightening, and the RBI may prefer to avoid creating the impression that interest-rate hikes are being used to defend the currency.

Commenting on expectations from the real estate sector, Kunal Rishi, COO of Krisumi Corporation, said the RBI is currently operating in a challenging macroeconomic environment where it must strike a balance between controlling inflation and sustaining growth.

According to Rishi, maintaining the current rate structure would be the most appropriate course of action. He noted that affordable borrowing costs remain essential for supporting housing demand and improving affordability for homebuyers.

Tanuj Shori, CEO of Square Yards, said the residential property market has remained resilient, supported by strong demand from end-users, rising incomes, and an increasing preference for homeownership. He added that cumulative rate reductions over the past year have already made financing conditions more favourable.

Looking ahead, Shori said policy actions that support economic growth, keep inflation under control, and ensure adequate liquidity in the financial system would help sustain housing demand across major markets. He added that stable and predictable interest rates play a key role in home-purchase decisions and contribute to overall confidence in the sector.

Abhishek Bisen, Head-Fixed Income at Kotak Mahindra AMC, said the upcoming policy meeting is taking place against a backdrop of heightened uncertainty stemming from global conflicts, elevated crude oil prices, rupee weakness, and concerns regarding the monsoon.

Although retail inflation remains relatively comfortable at 3.48%, he noted that rising wholesale inflation and fuel costs are beginning to create pressure. At the same time, economic growth remains healthy, though not without challenges.

Bisen said that while financial markets have started factoring in the possibility of future rate increases, the RBI is likely to keep the repo rate unchanged at 5.25% for now. However, he expects policymakers to adopt a more hawkish tone by raising inflation forecasts, modestly lowering growth projections, and relying on foreign-exchange measures to contain currency volatility.

Gaura Sen Gupta, Chief Economist at IDFC First Bank, expects the RBI to maintain its current stance, pointing out that inflation remains within the central bank's target range.

She said that while inflation is under control, rising input costs pose a downside risk to economic growth.

Gupta added that the RBI's flexible inflation-targeting framework gives it room to look beyond the immediate impact of higher fuel prices.

However, she expects the central bank's communication to remain cautious, with policymakers signalling readiness to intervene should inflationary pressures broaden.

“PM Narendra Modi last month urged the country’s citizens to adopt austerity measures to help conserve foreign currency reserves amid the oil shock resulting from Middle East tensions. Modi’s appeal came amid concerns over India’s trade balance and continued depreciation of the INR against the USD. India’s trade deficit in April has widened sharply to USD28.38bn owing to a surge in the import bill, driven primarily by crude oil and gold imports. The widening trade deficit is likely to keep India’s current account balance under pressure, with the current account deficit now seen by some economists to push wider to 2%–2.3% of GDP in FY 2027 from 0.9% in FY 2026.

As India is a net energy importer, prolonged Gulf tensions and elevated oil prices inflate the country’s import bill, increasing inflation and posing further downside risks to the current account and the INR. Inflation has ticked up to 3.5% in April and is expected to climb higher from here, noting that India’s state-run fuel retailers have raised gasoline and diesel prices four times in May. Growth for FY 2027 (year ending March 2027) is forecast at 6.8%-7.2% by the government and 6.9% by the Reserve Bank of India (RBI), although these projections face downside risks as the Middle East conflict drags on. Against this backdrop, foreign outflows continue to persist, exacerbating pressure on the INR, which has slid to record low levels (96.8288 on 20 May) against the USD this year. The INR is the second-worst performing Asian currency year to date and remains vulnerable to further downside.

The RBI has actively intervened in the foreign exchange market to stabilise the INR, while the government has ramped up efforts to stem foreign outflows, with further measures expected to be announced. Meanwhile, the 10-year Indian government bond (IGB) yield has moved up alongside peers since the Middle East conflict (+41bps to 7.001%) and continues to see upward bias as oil prices stay elevated and fiscal concerns grow. While most economists expect the RBI to stay on hold at its 3–5 June meeting, the market will be looking out for hawkish signals to assess rate hike prospects,” says Sok Yin Yong, Fixed Income Analyst Asia, Julius Baer.

"With inflationary pressures continuing to be driven largely by supply-side factors such as fuel prices, input costs and currency movements, we expect the MPC to adopt a balanced approach in its upcoming policy decision. For the housing sector, stability in interest rates remains important, as higher borrowing costs over the past few years have impacted affordability, particularly for first-time homebuyers in the affordable and mid-income segments. A stable policy environment, coupled with adequate liquidity, would support borrower confidence, improve credit flow and help sustain housing demand. We are also seeing increasing adoption of digital-first home financing solutions, making access to home loans more transparent, efficient and convenient for borrowers, says Atul Monga, CEO & Co-Founder, BASIC Home Loan.

According to a report by private lender Yes Bank, monetary policy challenges remain elevated despite some improvement in the geopolitical situation, as underlying risks have not fully dissipated and the economy continues to face the possibility of supply-side disruptions.

The report noted that wholesale price pressures are gradually feeding into consumer inflation, reflected in higher retail prices of petrol and diesel as well as increases in commercial LPG rates.

It further highlighted a sharp rise in manufacturing and agricultural input costs, with several producers indicating their intention to pass on these higher expenses to consumers.

"Although all policy options remain open, we believe the likelihood of a rate change or shift in policy stance in June is limited, as the RBI may prefer to wait and evaluate the secondary effects of rising prices," the Yes Bank report said.

The RBI uses the Consumer Price Index (CPI) as the primary measure while formulating monetary policy.

The government has mandated a CPI-based inflation target of 4%, with an upper tolerance limit of 6% and a lower threshold of 2%.

Retail inflation, measured by the CPI, edged up to 3.48% in April, largely driven by higher prices of gold and silver jewellery along with certain food items.

The RBI has already lowered policy rates by a cumulative 100 basis points during 2025-26. The total easing in the cycle stands at 1.25% with the first rate cut starting in February 2025. However economists now expect a rate hike cycle to start from the later half of FY 2026-27 if the US-Iran conflict persists and El Niño spoils the agricultural sector prospects.

State Bank of India Chairman C S Setty has said economic growth could stabilise if the RBI chooses to maintain current policy rates despite prevailing inflation concerns.

He added that market expectations are largely aligned towards a pause in interest rates.

Shishir Baijal, International Partner, Chairman and Managing Director of Knight Frank India, also expects the MPC to keep rates unchanged.

According to Baijal, a stable interest-rate environment remains crucial for the real estate sector, where housing affordability and homebuyer sentiment are closely influenced by borrowing costs. He said that maintaining rate stability would help support residential demand, sustain sales momentum, and encourage investment across the wider property market.

According to a PTI survey of economists and treasury heads, the RBI is expected to leave the repo rate untouched in the current review. However, a majority of respondents believe the central bank could return to a tightening cycle later in FY27 as inflationary pressures build.

Among those surveyed, 11 expect no change in rates at this meeting, while four anticipate a 25-basis-point increase.

Most respondents foresee at least two rate hikes during the current fiscal year, with some suggesting the possibility of more if inflation risks become more pronounced.