RBI MPC keeps repo rate at 5.25%: FY27 GDP, CPI

Decision day: rates on hold as expected

The Reserve Bank of India’s Monetary Policy Committee (MPC) announced its policy decision on June 5, with the repo rate widely expected to remain unchanged at 5.25%. Most economists had projected a second consecutive pause, citing inflation near the 4% target and resilient growth. The meeting began amid heightened global uncertainty, including concerns linked to the West Asia conflict and its potential spillovers to energy prices and risk sentiment. Market commentary leading into the decision also flagged pressure on government bond yields and fluctuations in the domestic currency, as noted in an SBI report. Analysts broadly expected the MPC to retain flexibility and emphasise incoming data.

What the MPC decided

The MPC unanimously kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25%. It also retained the ‘neutral’ policy stance. Reports on the decision said the stance signalled that interest rates are likely to remain supportive for some time, even as the central bank remains alert to evolving risks. The policy outcome aligned with pre-meeting expectations that the RBI would avoid any immediate rate action.

FY27 macro projections: growth at 6.9%, CPI at 4.6%

Alongside the rate decision, the RBI published updated projections for growth and inflation. GDP growth for FY27 is projected at 6.9% year-on-year, compared with 7.6% in FY26, as cited in policy coverage. CPI inflation for FY27 is projected at 4.6%, against an average of 1.9% in 11MFY26, based on the same reports. Notably, the RBI also issued a core inflation projection (excluding food and fuel) for the first time, expecting core inflation to average 4.4% in FY27. These projections set the baseline for how the MPC is reading demand conditions and price pressures.

How the quarterly path was revised

The policy highlights included changes to quarterly growth and inflation estimates for FY27. For growth, the RBI reduced Q1FY27 to 6.8% from 6.9% and lowered Q2FY27 to 6.7% from 7% earlier. The growth estimates for Q3FY27 and Q4FY27 were placed at 7% and 7.2%, respectively. On inflation, the RBI maintained Q1FY27 CPI projection at 4.0% and raised Q2FY27 CPI to 4.4% from 4.2% earlier. Q3FY27 and Q4FY27 CPI projections were set at 5.2% and 4.7%.

What economists expected going into the meeting

Ahead of the decision, economists largely expected no change in the repo rate or stance. Madan Sabnavis, Chief Economist at Bank of Baroda, said he did not expect a rate or stance change, but anticipated a cautious tone leaning hawkish. He also expected the RBI to increase its inflation forecast towards 5% and lower its GDP forecast to around 6.5% from 6.9%. Hitesh Suvarna, Economist at JM Financial, similarly expected an upward revision in the FY27 inflation estimate by 20 basis points to 4.8% while trimming the growth forecast to 6.8%. The eventual projections published by the RBI differed in magnitude from these expectations, but the cautious framing remained a key theme in market commentary.

Global and domestic context shaping the stance

Coverage of the June meeting pointed to the West Asia war casting a shadow on the global economy, a backdrop that can influence commodity prices, trade flows, and financial conditions. A separate note from BofA Global Research suggested that a recent India-US trade agreement is likely to boost growth certainty, which could give the RBI room to maintain its current stance. An ET poll of 15 participants indicated that with inflation projected to stay around the 4% target and growth remaining robust, there was limited immediate pressure to change rates. Analysts also expected the MPC to reiterate a data-driven approach, keeping flexibility to adjust if the growth-inflation balance shifts.

Market impact: what a hold means for borrowers and investors

With the repo rate unchanged at 5.25% and the stance remaining neutral, the policy signal was broadly consistent with stability in the near-term interest rate environment. For borrowers, the decision suggests no immediate policy-driven change in the benchmark rate. For investors, the focus shifts to how the RBI’s updated inflation path, including the higher Q2FY27 CPI projection, influences rate expectations across the curve. The same market reports that previewed the meeting cited pressure on government bond yields and domestic currency fluctuations, both of which remain sensitive to global risk events and evolving inflation data. The RBI’s introduction of a formal core inflation projection also gives markets an additional indicator to track alongside headline CPI.

Background: how policy arrived at 5.25%

The June decision follows earlier policy action that set the repo rate at the current level. In the December MPC meeting, the RBI cut the repo rate by 25 basis points to 5.25% with immediate effect, according to policy summaries included in the coverage. Following that move, the standing deposit facility (SDF) rate under the LAF was adjusted to 5.00%, while the marginal standing facility (MSF) rate and the Bank Rate were set at 5.50%. That December communication also pointed to easing headline inflation and expectations that both headline and core inflation could be at or below the 4% target during the first half of 2026-27.

Key numbers at a glance

What to watch next

With the policy rate unchanged, the next leg of market interpretation is likely to centre on how the RBI frames risks around inflation and growth in its communication. The quarterly inflation profile, particularly the 5.2% projection for Q3FY27, will remain on the radar alongside the new core inflation estimate for FY27. Investors will also watch how global developments and domestic financial conditions evolve, given the pre-meeting focus on uncertainty, bond yields, and currency moves. Any future shift in the neutral stance would likely hinge on realised inflation outcomes versus the RBI’s projected path and the durability of growth.