RBI keeps repo rate at 5.25% as FY27 GDP, inflation reset

Policy decision: status quo on rates and stance

The Reserve Bank of India (RBI) kept the benchmark policy repo rate unchanged at 5.25% on Friday, sticking to a cautious approach amid global uncertainty. The Monetary Policy Committee (MPC) unanimously voted to maintain the current rate setting. The RBI also retained its neutral policy stance, signalling that future decisions will be guided by incoming data on inflation and growth risks rather than a pre-committed path. The central bank said it is watching inflation dynamics and the evolving growth outlook more closely before recalibrating policy settings. Alongside the repo decision, the RBI reiterated its view that the domestic economy remains resilient. It also indicated confidence that India can withstand external shocks with “minimum pain,” even as global risks remain elevated.

Key rates unchanged: repo, SDF, MSF and bank rate

Beyond the headline repo rate, other policy corridor rates also remained unchanged. The Standing Deposit Facility (SDF) rate was held at 5.00%. The Marginal Standing Facility (MSF) rate and the Bank Rate stayed at 5.50% each. The Cash Reserve Ratio (CRR) was stated at 3%. These parameters frame money market conditions and influence how liquidity is priced across the banking system. With the stance staying neutral, the RBI kept flexibility to respond as inflation and growth data develop through FY27.

Growth outlook downgraded for FY27

The RBI trimmed its real GDP growth projection for FY27 (2026-27) to 6.6% from the earlier estimate of 6.9%. The revision reflects increasing caution on the growth path as cost pressures and global risks feed into the macro outlook. The central bank’s communication pointed to uncertainty created by global developments and war-driven cost pressures. The downgrade underlines that while domestic demand may be holding up, the external environment is becoming less supportive. The FY27 forecast change is meaningful because it resets market expectations on the likely pace of expansion over the next year.

Inflation outlook raised; quarterly path turns steeper

While keeping rates unchanged, the RBI raised its CPI inflation forecast for FY27 to 5.1% from 4.6% earlier. It flagged higher prices for commercial LPG, base metals, plastics, rubber and other components as part of the cost-pressure backdrop. India’s retail inflation (CPI) stood at 3.48% in April 2026, with the article noting a rise driven by higher prices of gold, silver jewellery, and certain food items. The RBI also indicated core inflation at 4.7% in its projections. Quarterly inflation estimates for FY27 were raised across the board: Q1 to 4.2% (from 4.0%), Q2 to 5.1% (from 4.4%), Q3 to 5.9% (from 5.2%), and Q4 to 5.4% (from 4.7%).

Measures to draw foreign inflows and deepen bond markets

A major part of the policy package focused on supporting foreign capital inflows, deepening domestic bond markets, and easing external financing conditions. The RBI expanded the Fully Accessible Route (FAR) by including all new issuances of 15-year, 30-year and 40-year government securities under the category. It also removed short-term investment limits and concentration norms for foreign portfolio investors (FPIs) in government bonds under the general route. Separately, limits for investments by Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in equity instruments traded on the stock market without SEBI registration are being raised. This facility is also being extended to all individual Persons Resident Outside India (PROIs) at par with NRIs and OCIs.

Forex and external financing: swaps, ECBs and export proceeds

The RBI announced measures to ease external financing conditions and improve dollar availability. It restored the export proceeds realisation period to nine months. It also offered a concessional forex swap facility for about four months until September 30, 2026 to incentivise three-to-five-year External Commercial Borrowings (ECBs) by Central Public Sector Enterprises (CPSEs). In addition, the RBI said it will allow a similar facility by bearing the full hedging cost until September 30 for banks that raise three-to-five-year FCNR(B) deposits. These steps were positioned as temporary measures to support external financing and manage currency market conditions.

Tax change: ordinance for government securities

Alongside the central bank’s announcements, the government issued the Income-Tax (Amendment) Ordinance, 2026, exempting eligible Foreign Institutional Investors (FIIs) and the Bank for International Settlements from taxes on government securities. The ordinance exempts interest earned on government securities and capital gains from the sale, exchange, or transfer of such securities for eligible investors, and also removes withholding tax on these investments. It was stated to be effective retrospectively from April 1, 2026. The move aligns with the RBI’s broader effort to improve the attractiveness and accessibility of Indian government bonds for global investors.

Market snapshot after the policy

Markets reflected the combination of steady rates and an inflow-supportive package. The article noted the rupee strengthened 0.4% post policy, and also cited the rupee at 95.179 against the US dollar. The 10-year government bond yield was reported at 7.013%. India’s foreign exchange reserves were cited at $12.3 billion as of June 2, 2026, presented as a buffer against external volatility. These market levels provide context to how investors priced the RBI’s decision and the accompanying steps on flows and financing.

Key numbers at a glance

Why the decision matters

The RBI’s hold at 5.25% combines a wait-and-watch posture on inflation with a clear acknowledgement that the growth-inflation mix has shifted for FY27. Cutting the GDP forecast while raising inflation projections sets a tighter policy dilemma, making the neutral stance central to how markets read the next few meetings. The liquidity and inflow-related measures, including FAR expansion and the removal of certain FPI limits, aim to improve the depth and investability of the government bond market. The forex swap and FCNR(B) incentives are designed to ease external financing conditions in the near term, with a stated end date of September 30, 2026. Together with the tax ordinance on government securities, the package strengthens the policy push to attract stable foreign participation while keeping the core policy rate steady.

Conclusion

The June 2026 MPC decision kept policy rates unchanged and maintained a neutral stance, while resetting FY27 forecasts to 6.6% GDP growth and 5.1% inflation. The RBI paired the decision with measures spanning FAR expansion, FPI and NRI-related relaxations, and time-bound forex facilities up to September 30, 2026. The next policy signals are likely to hinge on how inflation evolves against the new quarterly path and how global cost pressures play out in incoming data.