NEW DELHI : The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) wrapped up its second innings of FY27 from June 3–5, 2026, opting to play a steady, risk-aware game. Much like a batting side choosing to defend a solid total on a tricky pitch, the MPC unanimously decided to hold the policy repo rate unchanged at 5.25 percent, in line with expectations, while retaining the “neutral” stance.
As a result, the Liquidity Adjustment Facility (LAF) corridor also stayed intact, with the standing deposit facility (SDF) at 5 percent and the marginal standing facility (MSF) along with the bank rate at 5.5 percent, signaling a continued wait-and-watch approach amid evolving macro conditions.
Real GDP growth for FY26 is estimated at 7.6 percent (Second Advance Estimate), while the RBI has revised FY27 growth downward to 6.6 percent from 6.9 percent, primarily due to external headwinds such as the ongoing Middle East conflict, subdued global demand, and volatile financial markets, even as domestic conditions remain resilient.
On the inflation front, headline CPI—though currently below the 4 percent target—is projected to rise to 5.1 percent in FY27 (up 50 bps from April), driven mainly by higher energy prices, expected food price pressures due to a weaker monsoon, and possible second-round effects, while core inflation remains contained at around around 3.7 percent (and around 2.1–2.2 percent excluding precious metals).
Key risks to inflation include supply chain disruptions, elevated commodity prices, and El Niño-related weather conditions. Meanwhile, system liquidity remains comfortable with an average surplus of Rs 2.63 lakh crore (LAF basis), supported by RBI’s liquidity operations, and forex reserves stand at approximately $682 billion, covering about 11 months of imports.
The rupee has been under pressure, the net outflows from debt segment stood at $0.3 billion. It is worth noting that RBI and the government have announced several measures to pull foreign capital in India as mentioned below:
The G-Secs under the Fully Accessible Route (FAR) has been expanded to all new issuances of 15, 30, and 40-year tenor.
- The long-term capital gain tax (12.5 percent) and withholding tax (20 percent) on G-Secs have been abolished.
- The concessional forex swap till Sep’26 will be provided to incentivize external commercial borrowings (ECBs) by PSUs.
- Hedging costs to be provided till Sep’26 to AD banks for raising fresh 3-5-year FCNR deposits.
- Restore time for export realisation of export proceeds to 9 months.
This policy is likely to be remembered for the RBI’s calibrated approach—achieving objectives through a series of measured moves rather than a single large rate adjustment. These steps are expected to not only support the balance of payments but also improve domestic liquidity and revive sentiment in the bond market, potentially attracting inflows of around $75 billion. On the yield curve, corporate bonds are expected to exhibit a steepening bias, while the G-sec curve is likely to flatten.
Overall, the policy outcome was broadly in line with our expectations, albeit with a hawkish undertone, especially as markets had been pricing in significant rate hikes over the next 12–15 months. Post-policy, the 10-year G-sec yield softened to around 6.93 percent from ~7 percent, reflecting improved sentiment. Going ahead, the MPC is expected to remain data-dependent, closely tracking supply-side pressures and global developments before taking further rate decisions in the August policy.
