Reserve Bank of India Holds Repo Rate at 5.25%, Raises FY27 Inflation Forecast to 5.1%

The Reserve Bank of India (RBI) opted for caution in its June 2026 monetary policy review, with the six-member Monetary Policy Committee (MPC) unanimously voting to keep the benchmark repo rate unchanged at 5.25% and retaining its neutral policy stance. The decision, announced by Governor Sanjay Malhotra, was widely anticipated by markets and follows a cumulative 100 basis points of rate cuts the central bank delivered during FY25-26.

The RBI's caution reflects a complex balance between supporting growth and managing emerging inflation risks. While India's retail inflation, measured by the Consumer Price Index, stood at a relatively benign 3.48% in April 2026, the central bank signaled that price pressures are likely to build in the coming months. It raised its FY27 inflation forecast to 5.1%, with core inflation projected at 4.7%. Governor Malhotra identified food inflation as a key concern, pointing to the possibility of a sub-normal monsoon and emerging El Niño conditions, alongside the gradually visible impact of higher fuel prices stemming from global geopolitical tensions.

The global backdrop weighed heavily on the committee's deliberations. The RBI noted increased demand for safe-haven assets amid market volatility and observed that several major central banks are turning more cautious, with some leaning toward tighter monetary policy if inflation risks intensify — a reference to the global energy-driven inflation environment also affecting the US Federal Reserve and the Bank of Japan.

On the external front, the RBI highlighted India's strengthening position for foreign investment. The central bank has liberalized foreign portfolio investment norms for government securities, expanded the Fully Accessible Route (FAR), increased investment limits for Non-Resident Indians and Overseas Citizens of India in equity instruments, and removed certain short-term investment and concentration limits for foreign investors in government bonds. The RBI reiterated its commitment to maintaining adequate banking system liquidity to support economic growth. The next MPC meeting is scheduled for August 3-5, 2026.