Summary:
The Reserve Bank of India kept the repo rate unchanged at 5.25% and maintained a neutral policy stance in its latest monetary policy review. While the central bank raised its inflation forecast for FY27, it lowered GDP growth projections due to geopolitical tensions and global economic uncertainties. RBI also announced measures to attract greater foreign and NRI investment into Indian markets.
The Reserve Bank of India (RBI) on June 5 kept the benchmark repo rate unchanged at 5.25% and retained its monetary policy stance as “neutral”, citing heightened inflation risks arising from geopolitical tensions and global uncertainties. RBI Governor Sanjay Malhotra said the Indian economy remains resilient despite disruptions to trade routes, supply chains and increased market volatility.
The decision was taken unanimously by the Monetary Policy Committee (MPC), marking the third consecutive policy meeting where rates have remained unchanged. The RBI had also maintained status quo in April after delivering a 25-basis-point rate cut in December last year.
Repo Rate and Policy Stance Remain Unchanged
With the repo rate retained at 5.25%, the Standing Deposit Facility (SDF) rate remains at 5%, while the Marginal Standing Facility (MSF) rate continues at 5.5%. Governor Malhotra said the MPC considered uncertainties surrounding the duration and intensity of the ongoing West Asia conflict, its potential impact on the global economy and the timeline for supply-chain normalisation.
Given these evolving risks, the committee decided that maintaining a neutral stance would provide flexibility to respond to future developments while ensuring macroeconomic stability.
RBI Raises FY27 Inflation Forecast to 5.1%
The central bank revised its FY27 inflation forecast upward to 5.1% from the earlier estimate of 4.6%. The revision reflects rising prices of commercial LPG, base metals, plastics, rubber and other industrial inputs, which are expected to exert upward pressure on inflation.
For FY27, the RBI projects Consumer Price Index (CPI) inflation at 4.2% in the first quarter, 5.1% in the second quarter, 5.9% in the third quarter and 5.9% in the fourth quarter.
Despite the upward revision, Governor Malhotra noted that headline inflation remains below the RBI’s 4% target for now, with CPI inflation recorded at 3.4% in March and 3.5% in April. However, baseline projections indicate inflation could move closer to the upper tolerance band during the second half of the fiscal year.
Growth Forecast Lowered to 6.6%
Reflecting a more cautious outlook amid global headwinds, the RBI reduced its FY27 real GDP growth forecast to 6.6% from 6.9%.
Quarter-wise projections have also been revised lower. Growth is now expected at 6.6% in Q1 compared to 6.8% earlier, 6.3% in Q2 versus 6.7%, 6.5% in Q3 against 7%, and 6.8% in Q4 compared with the previous estimate of 7.2%.
The RBI said global uncertainty, disruptions to trade routes, supply-chain challenges and cautious business sentiment have influenced the revised outlook. However, the central bank remains confident that India’s stronger macroeconomic fundamentals will help cushion the impact of external shocks.
Measures to Boost Foreign and NRI Investments
The RBI announced higher investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in exchange-traded equity instruments without requiring registration with SEBI. The move is aimed at encouraging greater participation by overseas Indians in domestic capital markets.
To attract foreign capital, the RBI expanded the Fully Accessible Route (FAR) by including all new issuances of 15-year, 30-year and 40-year government securities. Restrictions on short-term investments, concentration limits and individual security exposure for foreign portfolio investors under the General Route have also been removed.
The central bank said these measures, along with the government’s tax incentives, are expected to increase foreign participation in India’s debt market. The government has exempted foreign institutional investors and the Bank for International Settlements from capital gains tax on interest income and gains from government securities, effective April 1, 2026, subject to prescribed conditions.
Additionally, the RBI announced a concessional forex swap facility until September 30, incentives for external commercial borrowings by public sector undertakings, similar support for banks raising 3-to-5-year FCNR(B) deposits, and restoration of the export proceeds realisation period to nine months.
