India's RBI Holds Repo Rate at 5.25%, Cuts Growth Forecast and Raises Inflation Outlook

The Reserve Bank of India (RBI) held its key policy rate steady in a widely anticipated decision, signaling a cautious approach amid a challenging global environment. At its June 2026 Monetary Policy Committee (MPC) meeting — the 61st such meeting — the six-member committee, chaired by Governor Sanjay Malhotra, unanimously voted to keep the repo rate unchanged at 5.25% and retain a neutral policy stance. The Standing Deposit Facility (SDF) rate remains at 5.00%, while the Marginal Standing Facility (MSF) rate and Bank Rate continue at 5.50%.

The decision comes after the central bank had already cut rates by a cumulative 100 basis points during FY25-26, with the most recent reduction in February 2026. The RBI's caution reflects a delicate balancing act between supporting economic growth and containing inflation risks that are increasingly driven by external factors. Governor Malhotra highlighted concerns around the ongoing West Asia conflict, elevated crude oil prices, a weaker rupee, and uncertainty surrounding the southwest monsoon and potential El Niño conditions.

In its updated projections, the RBI lowered its FY27 GDP growth forecast to 6.6% from the 6.9% projected in April, while raising its inflation forecast to 5.1% from 4.6%, with core inflation projected at 4.7%. India's retail inflation, measured by the Consumer Price Index, stood at 3.48% in April 2026 — still comfortably within the RBI's 2-6% tolerance band — but the central bank warned that inflation is likely to move closer to the upper end of that band in coming quarters. India's foreign exchange reserves provide a substantial buffer against external volatility.

Beyond the rate decision, the RBI announced a series of measures aimed at strengthening foreign capital inflows and deepening financial markets. These include expanding the Fully Accessible Route to include all new 15-, 30-, and 40-year government securities, removing investment and concentration limits for foreign portfolio investors under the General Route, and increasing equity investment caps for NRIs and OCIs. The next MPC meeting is scheduled for August 4-6, 2026, with a rate cut possible if the West Asia conflict eases and crude prices stabilize.