RBI MPC Holds Repo at 5.25%, Raises FY27 Inflation

Decision: rates unchanged, stance stays neutral

The Reserve Bank of India (RBI) kept key policy rates unchanged on June 5, 2026, after reviewing domestic and global macroeconomic and financial conditions. The Monetary Policy Committee (MPC) voted unanimously to maintain the policy repo rate at 5.25%. The MPC also decided to continue with the neutral policy stance, signalling flexibility in either direction as data and risks evolve. The decision was widely seen as in line with market expectations.

The RBI framed its decision against a deteriorating global environment, elevated energy prices, and rising domestic uncertainties. It also pointed to supply disruptions and volatility in financial markets as key near-term risks. The central bank said it would remain agile, given heightened uncertainty.

What changed: FY27 growth cut, inflation forecast raised

Alongside the steady policy rate, the RBI revised its macro projections for FY27. It lowered its real GDP growth forecast for FY27 to 6.6% from 6.9% earlier, citing a mix of global and domestic headwinds. At the same time, it raised the CPI inflation projection for FY27 to 5.1% from 4.6%, a 50 basis point increase.

The governor noted that supply disruptions, financial market volatility, and weather shocks could weigh on overall activity. On inflation, the RBI warned that higher input costs may be passed on to consumers, adding pressure in the coming months. The revised inflation path indicates a more challenging balance between supporting growth and keeping inflation anchored.

Policy corridor: SDF and MSF held steady

With the repo rate unchanged, other key rates were also maintained. The Standing Deposit Facility (SDF) rate remains at 5.0%. The Marginal Standing Facility (MSF) rate, and the bank rate, were kept unchanged at 5.5%.

Keeping the corridor steady reinforces the MPC’s preference for continuity while it reassesses evolving risks. The neutral stance suggests the RBI is not pre-committing to a rate cut or hike, especially amid uncertainty around commodity prices and supply conditions.

Inflation outlook: quarterly path and core inflation

For FY27, the RBI now projects headline CPI inflation at 5.1%. It also provided a quarterly split: Q1 at 4.2%, Q2 at 5.1%, Q3 at 5.9%, and Q4 at 5.4%. The RBI flagged that higher input costs could push inflation higher as firms adjust prices.

Core inflation for the year is projected at 4.7% in the same set of projections. The RBI’s commentary highlighted risks from energy prices and supply chain disruptions, which can quickly feed into transportation, manufacturing, and services costs.

Growth outlook: FY27 marked down to 6.6%

The RBI reduced its FY27 growth estimate to 6.6% from 6.9%, reflecting a more cautious view on momentum. Reports around the meeting also referenced FY27 quarterly growth projections of 6.8% in Q1, 6.7% in Q2, before picking up to 7.0% in Q3 and 7.2% in Q4.

Separately, coverage around the policy noted the RBI kept FY26 growth unchanged at 7.6%, and some reports described this as an increase from 7.4% earlier. Taken together, the broad message was that growth is still expected to remain firm in the near term, but the FY27 outlook has turned more conservative as global risks rise.

Global risks: energy prices, geopolitics, and market volatility

A recurring theme in the RBI’s assessment was the role of global uncertainty. The RBI pointed to elevated energy prices and supply chain disruptions as risks that can simultaneously weaken growth and raise inflation. It also referred to heightened geopolitical uncertainty, with some reports describing the June meeting as the first since the outbreak of the Iran conflict.

Such events can add a geopolitical risk premium to oil markets and increase volatility in currencies and bond yields. The RBI also referenced a sharply weaker rupee in some coverage of the decision, underlining the importance of monitoring external stability conditions.

Liquidity and stability: why the RBI emphasised “agility”

By retaining a neutral stance, the RBI signalled it wants room to respond quickly if inflation risks intensify or if growth weakens more than expected. The central bank also flagged risks to liquidity and financial stability from global shocks. Volatility in global rates and commodity prices can affect domestic funding costs and capital flows.

RBI Governor Sanjay Malhotra also cited India’s foreign exchange reserves rebounding to $197.1 billion as of April 3, according to remarks referenced in reports. While reserves are not a policy lever for inflation directly, they are an important buffer during periods of external volatility.

Key numbers snapshot

Why it matters for markets and borrowers

A steady repo rate at 5.25% typically reduces immediate uncertainty for borrowers and lenders because benchmark funding conditions remain unchanged. But the upward revision to inflation, and the warning on input cost pass-through, can influence market pricing for future policy moves. Bond yields and currency moves can remain sensitive when inflation risks are rising and growth forecasts are trimmed.

For equity investors, the RBI’s projections matter because they shape expectations for corporate demand, margins, and interest-sensitive sectors. The key takeaway from this policy is the trade-off: growth expectations for FY27 have been lowered, while inflation risks have increased, keeping the central bank cautious.

Conclusion

The RBI’s June 5, 2026 policy kept the repo rate unchanged at 5.25% and maintained a neutral stance, with the MPC voting unanimously. The central bank cut its FY27 growth forecast to 6.6% and raised its FY27 CPI inflation forecast to 5.1%, citing global uncertainty, energy prices, and supply-side risks. The next signals for markets are likely to come from incoming inflation prints, commodity price trends, and any further clarity on global supply disruptions and geopolitical developments.