Mumbai: The Reserve Bank of India (RBI) on Friday kept its key policy repo rate unchanged at 5.25%, signalling caution amid rising global uncertainties, persistent supply disruptions, and mounting inflationary pressures linked to the prolonged West Asia conflict.
The decision was taken unanimously by the Monetary Policy Committee (MPC) at its 61st meeting held from June 3 to June 5 under the chairmanship of RBI Governor Sanjay Malhotra.
The MPC also retained its neutral policy stance. As a result, the Standing Deposit Facility rate remains at 5%, while the Marginal Standing Facility rate and the Bank Rate continue at 5.50%, the RBI said in a statement.
The central bank said risks to both inflation and economic growth have increased as the conflict in West Asia shows no signs of resolution. Volatile energy markets, declining crude oil reserves, and firmer global commodity prices have added to the uncertainty.
According to the RBI, major advanced economy central banks are likely to turn more cautious and could move towards monetary tightening. Global financial markets have remained mixed, with equities supported by optimism around artificial intelligence, while sovereign bond yields have risen due to concerns over inflation and fiscal sustainability.
Despite the challenging global environment, the Indian economy has remained resilient. High-frequency indicators suggest domestic economic activity has largely stayed steady since the outbreak of the conflict.
Private consumption has remained resilient, while fixed investment has maintained momentum despite higher costs. Merchandise exports recorded strong growth in April 2026, although rising freight and insurance costs continue to weigh on trade. Services exports also remained robust.
The RBI, however, cautioned that strains are becoming increasingly visible. Elevated energy and commodity prices, supply disruptions, and higher import costs are expected to affect economic activity in the coming months.
The central bank also flagged concerns over a likely deficient south-west monsoon, which could impact agriculture and rural demand. It noted that government initiatives such as crop diversification, water conservation measures, climate-resilient farming practices, and short-duration crops could help reduce the impact.
Urban consumption is expected to receive support from continued strength in the services sector, the impact of GST rationalisation, and broadly stable employment conditions. Strong capacity utilisation, steady credit flows, and government capital expenditure are also expected to support investment activity.
Taking these factors into account, the RBI projected India’s real GDP growth at 6.6% for 2026-27. Quarterly growth is estimated at 6.6% in the first quarter, 6.3% in the second quarter, 6.5% in the third quarter, and 6.8% in the fourth quarter.
On inflation, the RBI noted that headline consumer price inflation rose to 3.4% in March and 3.5% in April, mainly due to higher food prices. Core inflation remained unchanged at 3.7% between January and April.
The central bank warned that inflationary pressures could intensify after retail fuel prices were raised from May. Petrol prices have increased by 7.4%, while diesel prices have risen by 8.4%.
According to the RBI, the fuel price increase alone could have a direct impact of about 36 basis points on headline inflation. Higher global energy prices are also raising costs for commercial LPG, industrial raw materials, chemicals, rubber, and plastic products.
Reflecting these concerns, the RBI projected CPI inflation at 5.1% for 2026-27. Quarterly inflation is expected at 4.2% in Q1, 5.1%v in Q2, 5.9% in Q3, and 5.4% in Q4.
The central bank said the inflation outlook remains subject to upside risks from global supply chain disruptions and uncertainty surrounding the monsoon. However, adequate foodgrain stocks and satisfactory reservoir levels provide some comfort.
The RBI also highlighted several government measures aimed at improving economic resilience, including support for MSMEs and exporters, efforts to increase domestic gas and crude production, promotion of locally produced alternatives, and diversification of critical imports.
While maintaining rates, the central bank indicated that future policy decisions would remain closely tied to evolving inflation trends, global developments, and the impact of supply-side disruptions on the domestic economy.
