The Reserve Bank of India concluded its 61st Monetary Policy Committee meeting on June 5, 2026, keeping the benchmark repo rate unchanged at 5.25%. Led by Governor Sanjay Malhotra, the committee voted unanimously to maintain this rate alongside a neutral policy stance. Indian equity markets reacted with caution to the announcement, with the Nifty falling 0.21% to close at 23,366.70 and the Sensex dropping 0.16% to 74,243.34, led by contractions in IT and metal stocks. The central bank balanced growth concerns with macroeconomic stability by introducing liberalized foreign investment norms to support the rupee against global headwinds.
Key Policy Rates and Committee Decision
The central bank maintained a pause on policy rates to address supply-side economic shocks while sustaining economic momentum. The absolute alignment of the policy corridor remains as follows:
| Policy Instrument | Current Rate | Economic Function |
| Policy Repo Rate | 5.25% | Rate at which RBI lends short-term liquidity to commercial banks against government securities. |
| Standing Deposit Facility (SDF) | 5.00% | The floor of the policy corridor; absorbs overnight liquidity from banks without collateral. |
| Marginal Standing Facility (MSF) | 5.50% | The ceiling of the policy corridor; provides emergency overnight liquidity to banks. |
| Bank Rate | 5.50% | Aligned automatically with the MSF; applies to long-term rediscounting of bills. |
Macroeconomic Projections and Global Counter-Forces
The committee adjusted its projections for the financial year 2026-27 to reflect rising geopolitical tensions in West Asia and disruptions along global shipping lanes.
Growth Projections
The RBI lowered its real Gross Domestic Product growth forecast for FY 2026-27 to 6.6%, down from its previous projection of 6.9%. This downward revision accounts for a slower global demand environment, volatile energy markets, and uncertainties surrounding industrial exports.
Inflation Projections
Consumer Price Index inflation for FY 2026-27 is projected upward to 5.1%, marking a 50-basis-point increase over the earlier estimate of 4.6%.
- The domestic basket of crude oil averaged 110 dollars per barrel over April and May 2026 due to regional conflicts.
- A partial pass-through of global oil prices to domestic petrol and diesel occurred in May 2026, driving transport costs higher.
- Headline inflation is projected to peak near the upper tolerance limit of 6.0% in the third quarter of FY27 before moderating in the final quarter.
- Core inflation, which excludes volatile food and fuel components, remains anchored at 3.7%.
Structural Measures to Attract Foreign Capital
To ease depreciation pressure on the Indian Rupee and strengthen foreign exchange reserves, the RBI rolled out three targeted capital-account liberalizations.
Enhanced NRI and OCI Equity Limits
The central bank raised the permissible equity investment limits for Non-Resident Indians and Overseas Citizens of India. This expansion increases the depth of domestic capital markets and opens up alternative equity funding channels for listed Indian firms.
Expansion of the Fully Accessible Route
The RBI expanded the basket of specified government securities eligible for investment under the Fully Accessible Route. This mechanism allows foreign portfolio investors to invest in Indian sovereign bonds without any quantitative caps, enhancing passive inflows into domestic debt indices.
Forex Inflow Incentives
The central bank extended full hedging support to authorized dealer banks to mobilize Foreign Currency Non-Resident (Bank) deposits with tenors of 3 to 5 years. Concessional foreign exchange swap facilities were also introduced to encourage external commercial borrowings by public sector undertakings.
IASPOINT Booster Facts for UPSC
- Statutory Genesis: The MPC is a statutory body constituted under Section 45ZB of the amended Reserve Bank of India Act, 1934. The first such committee was constituted in September 2016.
- Composition Rules: The committee consists of six members: three from the RBI (including the Governor as ex-officio Chairperson) and three external members appointed by the Central Government on the recommendations of a search-cum-selection committee.
- Quorum and Voting: The statutory quorum for an MPC meeting is four members. Each member has one vote, and the Governor exercises a casting vote only in the case of an equality of votes. By mandate, the MPC must meet at least four times a year.
- The Policy Corridor: The space between the SDF and the MSF forms the liquidity management corridor. By keeping the SDF at 5.00% and the MSF at 5.50%, the RBI maintains a symmetrical width of 50 basis points around the 5.25% repo rate.
- Polymer Currency Trials: During the post-policy address, the Governor indicated that a primary proposal for introducing polymer-based currency notes is under active consideration to enhance note longevity and curb counterfeiting.