RBI holds repo at 5.25%: FY27 growth cut to 6.6%

Policy decision: rates unchanged for a third meeting

The Reserve Bank of India’s six-member Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 5.25% on June 5, 2026. This was the third consecutive meeting in which the central bank opted for a status quo. The decision was described as unanimous in the material provided. Alongside the rate decision, the MPC retained its neutral stance. The central bank reiterated that future policy actions would be guided by incoming data rather than a pre-committed path.

The RBI’s communication kept the focus on uncertainty rather than signalling any near-term directional shift. In its assessment, it judged it prudent to wait for greater clarity before taking further action. The policy outcome comes at a time when global developments are feeding into domestic inflation and growth assessments. The RBI framed the decision within a wider risk environment that is influencing commodity prices, supply chains, and inflation expectations.

Global backdrop: West Asia conflict, crude, and supply disruptions

The RBI cited mounting global uncertainties, including the absence of a peace deal between the US and Iran, and the fallout from prolonged conflict in West Asia. The central bank flagged that extended disruption in supply chains and elevated energy prices can affect both growth and inflation. These factors were positioned as key reasons behind the shift in its projections relative to the April policy. The policy statement and commentary pointed to the risk of second-round effects, where initial price shocks can spread more broadly.

RBI Governor Sanjay Malhotra said the adverse implications of extended supply chain disruptions and elevated energy prices are reflected in the moderation of growth and the increase in inflation projections compared with April. The RBI also flagged food price uncertainty and weather-related risks, including disruptions to the Southwest monsoon, as part of the domestic risk matrix. The central bank’s language indicated that risks have become less one-sided, with inflation management remaining a priority if cost pressures persist.

What changed since April: the RBI’s revised macro outlook

The June policy outcome included a sharp revision to the RBI’s macroeconomic outlook for FY27. The central bank cut its FY27 real GDP growth forecast to 6.6%, from 6.9% projected in April. At the same time, it raised the CPI inflation forecast to 5.1% from 4.6%. The core inflation projection was revised up to 4.7% from 4.4%.

These changes reflect the RBI’s view that India may face a more challenging combination of slower growth and higher inflation in the months ahead. The RBI linked the upward move in inflation projections to risks such as higher crude oil prices, supply-side pressures, and the possibility that firms pass on higher input costs. It also warned of the risk that inflation becomes more generalised through second-round effects on expectations and wages. While the governor noted that underlying inflationary pressures remain benign “at this juncture,” the policy stance stayed cautious.

FY27 growth path: weaker near-term, firmer second half

Beyond the annual forecast, the RBI also provided a quarterly growth profile for FY27. It now expects real GDP growth of 6.6% in Q1, 6.3% in Q2, 6.5% in Q3, and 6.8% in Q4. The material provided also referenced that April estimates were higher for several quarters, including Q2, Q3, and Q4.

The quarterly pattern implies softer momentum in the first half of the fiscal year, followed by improvement in the second half. The RBI framed the growth risks as linked to the West Asia conflict, elevated energy prices, supply disruptions, and weather-related uncertainties. This profile highlights the balancing act for policymakers when growth slows but inflation risks rise. Some economists, including HSBC as cited in the material, expect the RBI to prioritise inflation management if crude prices stay elevated for an extended period.

FY27 inflation path: Q3 seen near the tolerance ceiling

For inflation, the RBI expects CPI inflation to average 5.1% in FY27. The quarterly inflation profile is projected at 4.2% in Q1, 5.1% in Q2, 5.9% in Q3, and 5.4% in Q4. Notably, the inflation forecast for the October-December quarter was raised to 5.9% from 5.2% projected in April. That puts the projection close to the upper tolerance limit of 6%.

The RBI’s commentary highlighted intensified inflation risks after a surge in crude oil prices. It also flagged the potential for firms to pass on higher input costs, which can keep price pressures elevated. The policy focus on second-round effects suggests the central bank is watching how supply shocks translate into broader pricing behaviour. Food price uncertainty was also cited as a risk factor that could keep inflation in the upper tolerance band by Q3 FY27.

Policy stance and guidance: neutral, data-dependent, cautious

By retaining a neutral stance and holding rates, the RBI signalled that it is not committing to an easing or tightening cycle in advance. Instead, it emphasised data dependence and the need for clarity as global risks evolve. The central bank’s message was that uncertainty around energy prices, supply chains, and weather can quickly change the inflation-growth trade-off.

At the same time, the revised projections indicate less comfort on inflation compared with April. With Q3 inflation projected at 5.9%, the RBI has little room to ignore upside risks without risking the credibility of its inflation framework. That helps explain why the committee chose to wait rather than respond immediately with a directional move on rates.

Key numbers at a glance

Why this matters for markets and borrowers

The combination of a steady policy rate and higher inflation projections matters because it shapes expectations on the path of interest rates. With inflation risks rising, the RBI’s willingness to stay on hold signals a preference to avoid premature easing amid supply-side shocks. For borrowers, an unchanged repo rate supports stable lending rate expectations in the near term. For investors, the revised projections highlight that macro risks are increasingly tied to global energy prices and geopolitical developments.

The RBI’s emphasis on second-round effects is also important for assessing persistence. If companies pass on costs and wage and expectation dynamics shift, inflation can stay higher for longer, limiting flexibility. By lowering growth forecasts at the same time, the RBI acknowledged the drag that higher energy prices and supply disruptions can impose on activity. The policy stance suggests that the RBI is trying to preserve room to react as data clarifies whether inflation risks prove temporary or more entrenched.

Conclusion: status quo on rates, sharper focus on inflation risks

The RBI’s June 5 decision maintained the repo rate at 5.25% and kept the stance neutral, but the projections marked a clear shift from April. FY27 growth was cut to 6.6% and inflation was raised to 5.1%, with Q3 inflation projected at 5.9%, near the 6% ceiling. Governor Sanjay Malhotra’s comments linked the changes to elevated energy prices and supply chain disruption, while highlighting second-round risks.

From here, the RBI has signalled it will wait for greater clarity and remain guided by incoming data. The next set of inflation and growth prints, along with developments in crude prices, supply conditions, and weather, will be central inputs into the policy outlook.