RBI MPC 2026: Repo rate held at 5.25%, GDP 6.9%

RBI keeps rates unchanged in FY27’s first review

The Reserve Bank of India (RBI) kept the policy repo rate unchanged at 5.25% in the first bi-monthly review of FY26-27, extending the pause that also followed the February policy. The decision was taken unanimously by the Monetary Policy Committee (MPC), and the policy stance was retained at ‘neutral’. Governor Sanjay Malhotra framed the decision as a wait-and-watch response to a sharply more uncertain global backdrop than earlier in the year. The central bank said India’s macro fundamentals remain strong, but the economy is confronting a supply shock stemming from geopolitical disruptions. In this context, the RBI emphasised vigilance on inflation dynamics, currency swings, and evolving global financial conditions.

Why the April policy turned more cautious

Since the previous policy, renewed geopolitical stress in West Asia has kept energy markets volatile and raised concerns around shipping lanes and supply routes, including around the Strait of Hormuz. The RBI highlighted upside risks to inflation from energy and commodity prices, and noted that second-round effects could make the inflation path harder to read. Malhotra said it would be premature to draw firm conclusions on the eventual impact of the conflict, arguing instead for adequate policy buffers and nimble action as information evolves. The RBI also pointed to weather-related risks that could affect food inflation, adding another layer of uncertainty to the inflation outlook. Several commentators described the stance as prudent because a change in rates could have amplified currency risks during heightened global volatility.

Inflation snapshot: low prints, higher risks

The RBI’s decision came even as near-term inflation readings appeared comfortable. Retail inflation based on the Consumer Price Index (CPI) was 3.21% in February. However, the central bank flagged that global developments have stoked inflationary pressures, especially through energy costs and supply chain dependencies in areas such as fertiliser and other commodities. In a separate set of takeaways from the April outcome, the RBI projected CPI-based inflation at 4.6% for FY27, which remains within the tolerance band of 2-6%. The policy messaging, however, stressed that risks are not evenly balanced and that the balance of risks has an upward tilt for inflation amid supply-side shocks.

Growth forecast revised: FY27 seen at 6.9%

Alongside the rate decision, the RBI revised its growth outlook, pegging GDP growth at 6.9% for FY27. This was described as slightly lower than the FY26 growth estimate of 7.6%, with elevated commodity prices and global supply shocks seen as drags on domestic production. Malhotra noted that further escalation of the conflict, heightened volatility in global financial markets, and weather-related events could weigh on domestic growth. He added that risks to baseline projections are tilted to the downside while uncertainty remains elevated. At the same time, the RBI reiterated that India’s fundamentals are on a stronger footing than in past shocks, improving the economy’s ability to absorb external disruptions.

Currency and external buffers: rupee swings in focus

Currency volatility was a central part of the RBI’s assessment. The rupee hit a historic low of 95.21 against the US dollar in late March, before recovering to 92.56 following a ceasefire between the US and Iran, according to the report. The RBI still flagged that currency swings remain a concern for import-driven inflation, especially when energy prices are rising. Malhotra also noted in commentary that the rupee depreciated more in 2025-26 than in previous years, and that the currency weakened by over 4% since the onset of the West Asia conflict. On the buffer side, India’s foreign exchange reserves stood at USD 697.1 billion as of April 3, covering around 11 months of imports, providing what the RBI and market participants view as a stabilising cushion amid external volatility.

What the RBI said about transmission and liquidity

The April pause also reflects the RBI’s view that past easing is still working through the system. Since February last year, the RBI has cut rates by a cumulative 125 basis points, with the last rate cut reported in December 2025. Some analysts noted that transmission of earlier rate changes may not be fully complete, making a pause useful for assessing downstream effects. The RBI signalled it will remain proactive in ensuring sufficient liquidity in the banking system to support financial stability and credit flow. Malhotra said the central bank would stay vigilant, closely monitor incoming information, and assess the balance of risks. He also said interventions would continue to curb excessive volatility, while reiterating that the exchange rate policy remains unchanged.

Key numbers from the April 2026 MPC outcome

Market impact: rates, bonds, and real-economy channels

The RBI’s hold reinforces a bias toward stability at a time when global volatility could spill over into domestic financial conditions. The governor noted that G-sec yields were largely range-bound with a softening bias in February, but hardened thereafter on account of the conflict, signalling how quickly external shocks can tighten domestic conditions. By keeping the repo rate unchanged, the RBI aims to limit additional uncertainty for borrowing costs while it evaluates the inflation-growth trade-off. For interest rate-sensitive sectors, Sandeep Chhillar of Landmark Group said the pause implies near-stable home loan rates, which is relevant for housing demand and affordability. The RBI also warned that higher freight and insurance costs linked to the conflict could elevate input costs and disrupt supply chains, which can feed into pricing and margins.

What analysts and industry voices highlighted

Multiple market participants characterised the decision as measured and data-dependent. Vivek Iyer of Grant Thornton Bharat pointed to the governor’s emphasis on the government’s fiscal policies as a long-term positive for the economy. Rahul Goswami of Franklin Templeton described the stance as consistent with a wait-and-watch approach, with future moves hinging on inflation and broader macro stability. Ajit Mishra of Religare Broking cited FY27 GDP projected at 6.9% alongside rising crude-led risks as rationale for caution. State Bank of India’s group chief economic adviser Soumya Kanti Ghosh said this was the most cautious statement among the governor’s eight so far, while adding it does not imply a rate hike is imminent and that a prolonged pause is likely under the uncertain global environment. Rajeev Juneja said resilient domestic demand and inflation within the 2-6% range provide stability even as supply-side disruptions persist.

What to watch before the June 3 to 5 meeting

The RBI’s next policy review is scheduled for June 3 to 5, 2026. The central bank is expected to track crude and commodity prices, the durability of the ceasefire and broader West Asia developments, and the extent of supply chain disruptions. Currency movement, capital flows, and bond market conditions were also flagged as variables that can reshape the inflation and financial stability outlook. The RBI’s messaging suggests policy will remain anchored in incoming data, with liquidity management used to smooth volatility where needed. For investors and borrowers, the April policy sets a baseline of rate stability, but not necessarily cost stability, as external shocks can still influence inflation, yields, and the rupee.