RBI Decides To Keep Policy Rate Unchanged Amid West Asia Crisis

The six-member Monetary Policy Committee (MPC) started its three-day deliberations on Wednesday (June 3). The interest rate pause comes even as the Consumer Price Index (CPI) based headline retail inflation has moved closer to the RBI’s medium-term target of 4 per cent at 3.48 per cent in April.

Moreover, there is fear of inflation further inching up due to an expected weak monsoon and fuel price rise in the coming months. “Global economy remains clouded amidst unprecedented challenges,” the Governor highlighted.

“Indian economy entered this episode of global turbulence with much better fundamentals than in previous similar episodes. We remain confident to withstand shocks with minimum pain”, RBI Governor Malhotra asserted. Consumer Price Index (CPI) inflation remains below target with upward bias.

The central bank raised the CPI inflation projection to 5.1 pc for FY27, higher from the earlier estimate of 4.6 pc, said the Governor.

The RBI has revised its GDP growth projection for the current fiscal year, lowering it from 6.9% to 6.6%. The governor noted that the increase in energy prices and supply disruptions are likely to negatively affect economic activity, with the impact of these cost pressures already becoming evident.

Additionally, the rupee has been depreciating continuously since the beginning of this year. The rupee settled at a record closing low of 96.86 against the USD on May 20, 2026, dropping 33 paise from its previous close.

Once considered among Asia’s more stable currencies, the rupee has now become one of the worst-performing emerging market currencies this year, pressured by a mix of expensive oil, capital outflows, widening trade deficits and a surging US dollar.

It has depreciated about 7 per cent so far in 2026 and is down roughly 6 per cent since the outbreak of the Iran conflict in late February.

Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February, April, and December 2025 and 50 basis points in June amidst easing retail inflation. India’s retail inflation dropped to a historic low of 0.25 per cent in October 2025, marking the lowest level since the CPI series was introduced.