On June 5, 2026, the Reserve Bank of India (RBI) decided to keep interest rates steady at 5.25%, a move anticipated by economists surveyed by Reuters and CNBC. This decision comes as the RBI raised its inflation projection for the financial year ending March 2027 by 50 basis points to 5.1%, while also lowering its growth forecast to 6.6% from a previous estimate of 6.9%.
RBI Governor Sanjay Malhotra indicated a more cautious monetary policy stance due to the uncertain global economic environment, particularly the geopolitical tensions in the Middle East, which have led to surging energy prices and supply chain disruptions.
Krishna Bhimavarapu, an economist at State Street Global Advisors, noted that the RBI's hawkish approach suggests a possible rate hike in August. The ongoing conflict has significantly impacted India's economy, inflating the import bill and putting pressure on the rupee, which has depreciated over 6% against the dollar this year, trading at 95.78.
In response to the currency's weakness, Prime Minister Narendra Modi has urged citizens to limit gold purchases and conserve fuel, while the government has raised duties on gold to protect foreign exchange reserves. Despite these efforts, inflation remains a concern, with food inflation rising to 4.2% in April.
The RBI faces a challenging landscape as it navigates the risks posed by potential weather-related disruptions from El Nino, which could exacerbate inflationary pressures in the future