RBI keeps repo rate unchanged at 5.25 pc, maintains 'Neutral' stance

The Reserve Bank of India is set to announce its monetary policy decision on Friday after the three-day Monetary Policy Committee meeting -- chaired by Governor Sanjay Malhotra -- with experts widely expecting the repo rate to remain unchanged amid geopolitical tensions and rising crude oil prices.

The policy decision comes against the backdrop of escalating geopolitical tensions in West Asia, which have pushed up crude oil prices.

Experts largely anticipate a status quo on rates, though they expect the central bank to retain a cautious tone in its forward guidance as global uncertainties continue to weigh on India's macroeconomic outlook.

Economists broadly expect the central bank to remain in a holding pattern in the near term.

According to HSBC chief India economist Pranjul Bhandari, while the RBI is likely to maintain status quo on rates, a gradual tightening bias could emerge over time.

She noted that markets are currently pricing in around two rate cuts beginning in the fourth quarter of 2026, rather than an aggressive tightening cycle.

Bhandari added that the RBI's updated projections will be closely watched for its assessment of the ongoing energy shock, particularly whether it revises its crude oil assumption upward from earlier levels of around $85 per barrel.

An analysis by CareEdge Ratings projected FY27 GDP growth at 6.7 per cent, assuming crude averages around $90 per barrel.

Similarly, SBI Research expected the RBI to maintain status quo on rates, citing a data-dependent approach amid persistent inflation risks and external volatility.

It pegs FY27 GDP growth at 6.6 per cent and FY26 growth at around 7.5 per cent, while CPI inflation could remain above 5 per cent for several quarters due to fuel price pressures and global shocks.

Meanwhile, Emkay Global Financial Services also expects no change in policy rates, citing easing crude oil prices and an improved external account outlook following recent corrections in Brent crude.

In the previous meeting in April, the MPC had kept the repo rate unchanged at 5.25 per cent while retaining a neutral policy stance.

Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Friday unanimously decided to keep the policy repo rate unchanged at 5.25 per cent, in line with the expectations from economists.

The Standing Deposit Facility (SDF) rate was set at 5 per cent, while the Marginal Standing Facility (MSF) rate and the bank rate stood at 5.5 per cent.

Announcing the decision of the second bi-monthly monetary policy meeting for FY27, held from June 3-June 5, RBI Governor Sanjay Malhotra said the MPC had undertaken a detailed assessment of evolving macroeconomic and financial conditions before voting unanimously to leave the policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 5.25 per cent.

Malhotra said while the economy remains resilient, incipient stress in certain segments are there and there are considerable risks surrounding both inflation and growth assessments.

The RBI revised its real GDP growth forecast for FY27 to 6.6 per cent, down from the earlier projection of 6.9 per cent, reflecting the impact of heightened global uncertainty, geopolitical tensions, supply chain disruptions, and rising energy prices.

The governor also expressed confidence that services exports will remain resilient despite global uncertainties and highlighted that the government has taken measures to help the economy cope with external shocks.

He said external factors continue to pose downside risks to the growth outlook amid elevated geopolitical tensions and global uncertainty. On the inflation front, he noted that fuel inflation remained muted in March and April, while core inflation was stable at 3.7 per cent during the two months.

On inflation, the governor said CPI inflation remains low at present, though baseline projections indicate that inflation could move closer to the upper tolerance band in the third quarter.

He cautioned that the outlook remains clouded by the forecast of a sub-normal monsoon and the possible emergence of El Nino conditions.

The RBI governor also said that private consumption remains supportive of growth, aided by resilient discretionary spending, while merchandise exports have continued to register growth despite the ongoing geopolitical conflict. However, he noted that the impact of rising cost pressures is becoming increasingly visible across sectors.

(With inputs from IANS)