The Monetary Policy Committee (MPC) on Friday(June 5, 2026) voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25%.
Consequently, the standing deposit facility (SDF) rate remains at 5% and the marginal standing facility (MSF) rate and the Bank Rate at 5.50%.
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The MPC also decided to continue with the neutral stance.
“The committee noted that the global environment has deteriorated since the last policy meeting with the conflict lingering amidst a fragile truce. The adverse implications of the extended disruption in supply chains and elevated energy prices are reflected in the moderation of growth and increase in inflation projections from the April policy,” Reserve Bank of India (RBI) Governor Sanjay Malhotra said in his statement.
Stating that CPI inflation remained below the target despite global shock as the passthrough to domestic prices had been limited, he said baseline projections point towards headline inflation firming up towards the upper tolerance level in Q3:2026-27 and the impact of the supply shock would wane Q4 onwards.
“The underlying inflation pressures continue to remain benign at this juncture. However, generalisation of inflation through second-round effects on expectations and wages is a distinct possibility, warranting a close vigil. The outlook also remains clouded due to the sub-normal south-west monsoon forecast and El Niño risks,” Mr Malhotra said.
As for growth, the MPC noted that elevated energy prices coupled with global supply constraints are having adverse spillovers on economic activity.
“While domestic demand remains resilient and manufacturing and services sectors activity continue to expand, there are incipient signs of moderation in some sectors as suggested by high frequency indicators,” he stated.
He said the MPC was of the opinion that there were 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.
“Additionally, the food outlook remains uncertain on account of the sub-normal south-west monsoon forecast and El Niño. Although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge,” he said.
“Accordingly, the MPC voted to keep the policy 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,” he said.
Stating that overall, the economic situation had broadly exhibited resilience and withstood the conflict spillovers, he said the impact of cost pressure was becoming visible.
“Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity. While import diversification in affected commodities is likey to improve supply, it would come at a higher cost,” he said.
“The full impact, however, will depend on the duration of the conflict, time taken for normalisation of supply chains and the burden-sharing approach among the stakeholders,” he added.
“The pass-through of higher energy prices to retail products is already evident. Additionally, the projected deficiency in the south-west monsoon will have implications for agricultural production and rural demand,” he emphasised.
However, the programmes and initiatives for crop diversification, water harvesting and conservation, climate- resilient practices and short-duration crops, among others, are expected to mitigate the impact, he stated.
Taking various factors into consideration, real GDP growth for 2026-27 is projected at 6.6% down from earlier projection of 6.9% with Q1 at 6.6%; Q2 at 6.3%; Q3 at 6.5%; and Q4 at 6.8%.
“Prolonged global supply chain disruptions, volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook,” the Governor said.
He said international crude oil prices (Indian basket) have averaged around $110/barrel during April-May 2026 and indications are that average oil prices for 2026-27 would be substantially higher than what were assumed during the last policy.
The Governor said the increase in domestic pump prices of petrol and diesel, commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs.
Considering various factors, CPI inflation for 2026-27 is projected to be at 5.1% which is 50 basis points more than the earlier projection with Q1 at 4.2%; Q2 at 5.1%; Q3 at 5.9%; and Q4 at 5.4%.
“Core inflation is projected at 4.7% for 2026-27. These forecasts are subject to upside risks due to global supply chain disruptions global commodity price shocks, uncertainty about the spatial and temporal distribution of the south-west monsoon and El Niño conditions,” the Governor said.
Published – June 05, 2026 10:50 am IST
