RBI keeps rates unchanged, cuts growth and hikes inflation forecast

MUMBAI: RBI held key policy rates unchanged on June 5, 2026, and revised growth and inflation projections amid a deteriorating global environment, elevated energy prices, and rising domestic uncertainties.


The MPC unanimously decided to maintain the status quo on interest rates after assessing macroeconomic and financial developments. The MPC also decided to continue with the neutral stance.


"After a detailed assessment of the evolving macroeconomic and financial developments, and the outlook, the MPC voted unanimously to keep the policy repo rate unchanged at 5.25%."


RBI lowered its growth forecast for FY27 to 6.6% from 6.9% earlier due to global and domestic headwinds. It now projects CPI inflation at 5.1% for the year, up from 4.6% earlier.


The governor said supply disruptions, financial market volatility, and weather shocks could weigh on activity. "Global high chain disruptions, volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook." He added that rising costs could affect output. "Although the impact of cost pressures is becoming visible, going ahead, the rise in prices of energy and other inputs coupled disruptions is likely to weigh on economic activity." Quarterly growth is projected at 6.6% in Q1, 6.3% in Q2, 6.5% in Q3, and 6.8% in Q4. "...taking all these factors into consideration, real GDP growth for this year is now projected at 6.6%"


Inflation projections were raised sharply after a surge in crude oil prices. The Indian basket averaged around $110 per barrel in recent months, higher than earlier assumptions. "International crude oil prices, the Indian basket have averaged around 110 US dollars per barrel during the last two months, and indications are that the average oil prices for this year would be substantially higher than what were assumed during the last policy." The earlier estimate was significantly lower. "You may recall that in the last policy we had told crude oil prices to average for this year at $85 per barrel..."


The decision reflects worsening global conditions since the April policy. The governor said geopolitical tensions in West Asia have affected trade and supply chains. "The committee noted that the global environment has deteriorated since the last policy meeting in April, with the conflict lingering ." The MPC flagged risks to both inflation and growth due to uncertainty around the duration and intensity of conflicts and their spillovers.


"The MPC was of the opinion that there are considerable risks to the baseline assessment of inflation and growth... due to the uncertainty about the duration and intensity of the conflict, magnitude of its spillover effects, and the pace of restoration of supply chains."


Domestic risks have added to the uncertainty. The governor pointed to weather-related concerns affecting agriculture. "Additionally, the food outlook too remains uncertain on account of subnormal southwest monsoon forecast, and El Nino of higher inflation have amplified the MPC felt it will be prudent to wait for greater clarity to emerge." The MPC reiterated a data-dependent approach. "Accordingly, the MPC voted to keep the policy repo rate unchanged. At the same time, the MPC will continue to remain data dependent and closely monitor the developments, including supply side pressures getting embedded in the general price level and inflation expectations..."


Higher input costs are expected to pass through to consumers. "Prices of several inputs, such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others, have increased. These could exert upward pressure on CPI inflation in the coming months as firms pass on these higher input costs..."


"Considering these factors, CPI inflation for this year now is projected to be at 5.1% about 50 basis points more than earlier projected, with q1 at 4.2% q2 at 5.1 q3 at 5.9 and q4 at 5.4% point 4% core inflation is projected at 4.7% for this year." Quarterly inflation is seen at 4.2% in Q1, 5.1% in Q2, 5.9% in Q3, and 5.4% in Q4, with core inflation at 4.7%.


The governor said the economy remains resilient despite global shocks. "Let me, as a very honest emphasize, that the Indian economy entered this episode of global double energy with much better fundamentals than in serious similar episodes." He added that policy will respond to emerging challenges. "The economy at this point is strong. We shall put in place policy to meet the challenges while taking measures to further strengthen the country."
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