RBI Maintains Policy Rate Amid Rising Inflation Risks and Global Economic Uncertainty

The Reserve Bank of India (RBI), through its Monetary Policy Committee (MPC), has decided to keep the repo rate unchanged at 5.25% during its latest policy review held on June 5, 2026. The decision was taken unanimously as policymakers weighed mounting inflationary pressures against concerns over economic growth.

With the policy repo rate remaining unchanged, the Standing Deposit Facility (SDF) rate continues at 5.00%, while both the Marginal Standing Facility (MSF) rate and the Bank Rate remain at 5.50%. The MPC has also chosen to retain its neutral monetary policy stance, signaling a cautious approach amid evolving domestic and global economic conditions.

Growth Outlook Revised Downward for FY27

RBI Governor Sanjay Malhotra announced a downward revision in India's economic growth outlook for the financial year 2026-27. The central bank now expects real GDP growth to reach 6.6%, compared to its earlier estimate of 6.9%.

According to the revised projections:

• Q1 FY27: 6.6%
• Q2 FY27: 6.3%
• Q3 FY27: 6.5%
• Q4 FY27: 6.8%

The Governor highlighted that elevated energy costs, persistent supply chain bottlenecks, and ongoing geopolitical tensions are creating headwinds for global and domestic economic activity. While India's domestic demand remains relatively strong and both manufacturing and services sectors continue to expand, recent high-frequency indicators suggest signs of moderation in certain segments of the economy.

Inflation Forecast Raised Amid Supply-Side Pressures

Alongside the revised growth outlook, the RBI has increased its Consumer Price Index (CPI) inflation projection for FY27 to 5.1%, representing an increase of 50 basis points from its previous forecast.

The quarterly inflation estimates are as follows:

• Q1 FY27: 4.2%
• Q2 FY27: 5.1%
• Q3 FY27: 5.9%
• Q4 FY27: 5.4%

The central bank noted that although inflation has remained below its target threshold despite recent global shocks, several risks are emerging that could push prices higher in the coming months.

Energy Prices and Supply Chain Disruptions Remain Key Concerns

The MPC observed that the global economic environment has deteriorated since its previous policy review. Continued geopolitical conflicts, fragile ceasefire conditions in some regions, and prolonged disruptions in global supply chains have contributed to higher commodity and energy prices.

Governor Malhotra pointed out that international crude oil prices averaged nearly $110 per barrel during April and May 2026, significantly above assumptions used in the previous policy review. Rising costs of petrol, diesel, commercial LPG, industrial raw materials, chemicals, metals, rubber, and plastic products are expected to gradually pass through to consumers, potentially increasing inflationary pressures.

Weather Risks Add to Inflation Uncertainty

Apart from global factors, weather-related concerns are also influencing the RBI's outlook. The central bank expressed caution regarding forecasts of a sub-normal south-west monsoon and the possibility of El Niño conditions, both of which could impact agricultural output, food prices, and rural demand.

The RBI warned that while current underlying inflation remains manageable, there is a risk that higher prices could spread more broadly through wage adjustments and inflation expectations, creating second-round inflationary effects.

At the same time, the Governor noted that several government initiatives—including crop diversification programs, water conservation efforts, climate-resilient farming practices, and promotion of short-duration crops—could help reduce the adverse impact of weather-related challenges.

RBI Chooses Caution and Data-Driven Policy Approach

Given the uncertainties surrounding global conflicts, supply chain normalization, commodity prices, weather conditions, and inflation trends, the MPC concluded that maintaining the current policy rate is the most prudent course of action.

The committee emphasized that it will continue to closely monitor incoming economic data and evolving risks before considering any future changes to monetary policy. Policymakers remain focused on ensuring that inflation expectations remain anchored while supporting sustainable economic growth.

Core Inflation Outlook

The RBI has projected core inflation at 4.7% for FY27. However, officials cautioned that risks remain tilted upward due to volatile commodity markets, geopolitical uncertainties, supply chain disruptions, and unpredictable monsoon patterns.

While the domestic economy continues to display resilience, the central bank's latest projections reflect a more cautious outlook as both growth and inflation face increasing external and domestic pressures.

Short Summary

The RBI's Monetary Policy Committee has unanimously decided to keep the repo rate unchanged at 5.25% while maintaining a neutral stance. At the same time, the central bank lowered its FY27 GDP growth forecast to 6.6% and increased its inflation projection to 5.1%, citing rising energy prices, global supply chain disruptions, geopolitical tensions, and weather-related risks.