Reserve Bank of India Holds Repo Rate at 5.25%, Flags Monsoon and El Niño Inflation Risks

The Reserve Bank of India (RBI) opted for caution at its June 2026 Monetary Policy Committee (MPC) meeting, with the six-member committee voting unanimously to keep the benchmark repo rate unchanged at 5.25% and retaining its neutral policy stance. The decision, widely expected by markets, came after the central bank had already reduced rates by a cumulative 100 basis points over the FY25-26 period, and reflects a deliberate balancing of inflation risks against the need to support continued economic growth.

RBI Governor Sanjay Malhotra cited a confluence of global and domestic factors behind the hold: rising geopolitical tensions, global market volatility, and increased demand for safe-haven assets that is pressuring currency markets worldwide. The central bank noted that several major global central banks are becoming more cautious and could lean toward tighter policies if inflation risks intensify.

While the RBI characterized underlying inflation pressures as broadly manageable, it acknowledged that inflation is likely to rise in the coming months and raised its FY27 inflation forecast to 5.1%, with core inflation projected at 4.7%. Governor Malhotra flagged food inflation as a key concern, pointing to the possibility of a sub-normal monsoon and emerging El Niño conditions — weather patterns that could disrupt agricultural output and push food prices higher. He also noted that the impact of higher fuel prices is gradually becoming visible in the economy. India's retail inflation, measured by CPI, stood at 3.48% in April 2026, driven largely by higher prices for gold, silver jewellery, and certain food items.

To strengthen capital inflows and investor confidence amid the uncertain global environment, the RBI announced a series of liberalization measures. It eased 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 growth. The next MPC meeting is scheduled for August 3-5, 2026.