MPC Holds Rate Steady Amid Global Volatility: India’s Economic Resilience Boosts Growth Forecast Despite Geopolitical Stress

MPC Holds Rate Steady Amid Global Volatility: India’s Economic Resilience Boosts Growth Forecast Despite Geopolitical Stress​

The Reserve Bank of India (RBI) maintained its cautious stance on monetary policy, holding the key repo rate steady as global economic uncertainty deepens. The Monetary Policy Committee (MPC) emphasized that while international headwinds continue to pose significant risks, the Indian economy maintains robust fundamentals and continues to navigate global turbulence with relative stability.

MPC Holds Rates Unchanged Amid Global Uncertainty​

The MPC met on June 3rd, 4th, and 5th, unanimously deciding to keep the policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 5.25 per cent. Consequently, the Standing Deposit Facility (SDF) rate remains at 5.00 per cent, with the marginal standing facility (MSF) rate and Bank Rate set at 5.50 per cent.

The RBI stated that the decision reflects a prudent wait for greater clarity concerning the protracted conflict in West Asia and its spillover effects. The committee noted that while global environments have deteriorated, leading to moderation in growth and higher inflation projections from the April policy, inflationary pressures remain benign at this juncture.

Domestic Growth Momentum Sustains Strong Outlook​

The RBI projects real GDP growth for 2026-27 at 6.6 per cent, with Q4 showing a robust forecast of 6.8 per cent. This projection is underpinned by continued resilience in domestic demand and strong performance across manufacturing and services sectors.

Recent data highlights sustained positive business sentiment. The Manufacturing PMI improved to 55.0 in May 2026, while the service sector PMI rose to 59.8, driven by high demand for freight and digital solutions. Furthermore, gross fixed capital formation (GFCF) grew at 7.8 per cent in Q3:2025-26, showing strong investment momentum.

Despite headwinds such as rising energy prices and global supply constraints, the economy has weathered conflict spillovers. Fixed assets of listed non-government non-financial companies registered a growth of 6.0 per cent during H2. This resilience is supported by continuous credit flows, with bank credit registering 15.4 per cent year-on-year (YoY) growth in 2025-26.

Inflation Risks and Price Stability Forecasts​

Although headline CPI inflation was below the target in March and April 2026 (3.4 per cent and 3.5 per cent, respectively), significant risks persist regarding input costs and global commodities. The RBI projects overall CPI inflation for 2026-27 at 5.1 per cent, with core inflation forecasted at 4.7 per cent.

The assessment is tempered by the possibility of firms passing on higher input costs in the coming months. Several inputs, including industrial raw materials and base metals, have seen sharp price increases. The outlook remains clouded by subnormal south-west monsoon forecast and the likelihood of El Niño conditions, which could impact agricultural production.

Financial Stability and External Sector Strength​

The financial system stability parameters for Scheduled Commercial Banks (SCBs) and Non-Banking Financial Companies (NBFCs) remain healthy according to the RBI. Key indicators show that SCB capital adequacy remains high at 17.68 per cent as of March 2026. System liquidity, measured by net absorption under LAF, stood at an average daily surplus of ₹ 2.63 lakh crore since the last MPC meeting in April 2026.

On the external front, India's foreign exchange reserves stand strong at US$ 682.3 billion as of May 29, 2026. This level provides approximately 11 months of import cover. Gross FDI flows grew by 17.3 per cent to a historical peak of US$ 94.5 billion in FY 2025-26.

Proactive Policy Measures and Global Trade Expansion​

To attract foreign capital, the RBI announced several measures designed to incentivize global investors. These include expanding the universe of specified securities for government borrowing under the Fully Accessible Route (FAR). Limits for NRIs and OCIs investing in unregistered equity instruments are also being increased.

Furthermore, the RBI will provide a concessional forex swap facility until September 30, 2026, to incentivize Economic Sector Banks (ECBs) using Public Sector Undertakings (PSUs). The central bank emphasized that it allows its exchange rate to be determined by market forces but remains committed to curbing excessive volatility and preventing disorderly market movements.