MPC Meeting Highlights: RBI Guv Sanjay Malhotra says economy in good condition; expects ‘healthy flows from various policy measures’

Sakshi Gupta, Principal Economist at HDFC Bank, now expects a cumulative 50 basis points increase in interest rates during FY27 after the central bank chose to maintain the status quo on the repo rate in its June policy meeting.

“The policy could be assessed as slightly hawkish given the 50 bps upward revision in the inflation forecast to 5.1% for FY27. This raises the likelihood of the rate hike cycle beginning with the October policy. We estimate a cumulative 50 bps rate increase in FY27,” Gupta said.

She also noted that the RBI and the government have undertaken a coordinated effort to boost capital inflows into Indian assets and ease pressure on the rupee.

“These measures were a mix of both short-term fixes as well as broader structural reforms, such as the change in taxation on FPI investments in G-Secs. The combined impact of these could help bridge the USD 40-50 billion gap in the balance of payments that we had estimated for FY27. We see an appreciation bias for the rupee over the coming months as the actual flows from these measures start trickling in,” she added.

Sameer Sawant, Research Analyst at Mirae Asset ShareKhan said that RBI action to maintain the status quo reflects that the future action will depend on incoming inflation and growth data rather than a pre-committed tightening or easing path.

“The decision reflects a balancing act between rising inflation risks, managing rupee and growth amid heightened global uncertainty. However, we believe if inflation continues to remain at elevated levels we could see a possible rate hike. The policy is also beneficial for PSU Banks and NBFCs as rates would remain largely stable, also there could be fresh deposit inflows in FCNR accounts as hedging cost is taken care of which should allow banks to offer better rates,” Sawant said.

The Governor reiterated that the RBI does not target any specific exchange rate level and allows the rupee to be determined by market forces.

At the same time, he said the central bank remains ready to intervene whenever required to prevent disorderly market movements.

“While our objective is not to resist market-driven adjustments, we will curb excessive volatility and prevent disorderly market movements,” he said.

RBI raised its FY27 consumer price inflation (CPI) forecast to 5.1% as higher crude oil prices begin to feed into domestic prices. Inflation is projected at 4.2% in Q1FY27, 5.1% in Q2FY27, 5.9% in Q3FY27, and 5.4% in Q4FY27.

“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. Adequate stocks of foodgrains and satisfactory reservoir levels, however, provide some comfort,” the RBI noted.

“The proposal is under consideration and is currently at a preliminary stage,” RBI Governor said.

Pralay Mondal, MD & CEO, CSB Bank says that the policy has taken a balanced approach of maintaining liquidity and growth along with keeping a watch on inflation.

“The shortage of dollar liquidity in the system has been addressed by a multi-pronged approach of increasing limits and reducing the cost burden on market players and FPIs. This should yield positive results in terms of inflows in the medium term.” Modal adds

Sachin Bajaj, Chief Investment Officer, Axis Max Life Insurance, says that today’s policy was much more cautious than previous meetings.

He says that the policy emphasized preserving macroeconomic stability amid the prevailing global macroeconomic environment.

“We believe there are significant risks to inflation in the coming months due to the pass-through of higher commodity prices to consumers and elevated food prices resulting from a below-normal monsoon.” Bajaj adds.

“Going forward, there is a risk of an upward revision in inflation projections, and given the evolving global backdrop, we believe the RBI is likely to maintain a prudent, data-dependent approach. Future policy actions will be contingent on evolving growth-inflation dynamics and global developments.” he notes.

RBI Governor Malhotra, during a media interaction following the MPC announcement, said that the bank expects lenders to pass on some of the benefits from lower hedging costs to their clients.

RBI’s assumption for crude oil has changed to $95 per barrel, the governor said in media interaction.

The RBI Governor noted that the central bank plans on undertaking no measures to restraint the outflow of foreign capital. He noted that measures like ECB and FCNRB have been undertaken and that inflation target remains the same at 4%.

The country’s fiscal state is fine and the West Asia conflict has impacted all the economies globally, RBI Governor Sanjay Malhotra said.

He added that the country’s banks are well sufficed and the country’s corporates have a good balance, noting that the country’s forex reserves are well positioned.

Overall he said that economy is well-balanced and the country will manage the West Asia conflict positively, noting that the crisis presents an opportunity for the country to manage its shocks well.

RBI Governor Sanjay Malhotra said that Indian rupee is not undervalued. In a media interaction, the governor clarified that the domestic currency may be undervalued on some accounts but clarified he might have stated that the currency could not be overvalued’.

“We are hopeful of reasonable and healthy dollar inflows, though we are not targeting any particular number,” said Sanjay Malhotra while addressing the media after the MPC policy announcement.

RBI Governor also noted that they are confident of a much better BoP this year

Madhavi Arora, Chief Economist at Emkay Global Financial Services, said that after maintaining the status quo, the RBI is likely to raise rates only from the next meeting onwards.

“It is clear that the RBI will raise rates only if inflation becomes entrenched and leads to second-round effects, with a clear delineation between monetary and foreign exchange policy. The MPC acknowledged risks to the growth-inflation outlook arising from the ongoing West Asia crisis and raised its inflation forecast to 5.1% (Emkay: 5.1%) while lowering its growth forecast to 6.6% (Emkay: 6.3%), with upside and downside risks, respectively.”

Arora also noted that the major announcements were focused on managing foreign exchange volatility and boosting capital inflows. These included subsidised FX swap rates for PSU ECBs, hedging cost subsidies for FCNR(B) deposits, and the expansion of the G-Sec FAR universe to include securities with maturities of 15 years and above.

“These measures, along with the government’s relaxation of FII taxes on G-Sec investments, should help support the rupee and could potentially lead to inflows of $30-50 billion during the year,” Arora added.

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group said that the RBI’s decision to hold the repo rate at 5.25% was widely expected. “The more important message from this policy is that India’s key macroeconomic challenge is no longer domestic demand—it is the external sector.”

“What stands out is the RBI’s growing focus on external vulnerabilities. Higher oil prices threaten to widen the current-account deficit, while persistent foreign portfolio outflows and elevated global uncertainty could make external financing more challenging. The central bank’s accompanying measures to attract capital and strengthen external financing conditions signal a clear shift in priorities,” Sujan Hajra said.

“The surge in energy prices and persistent trade policy uncertainties continue to pose upside risks to India’s current account deficit in 2026- 27. Services trade surplus and inward remittances are expected to provide some comfort.” RBI said.

The RBI announced several measures aimed at attracting foreign capital.

This include expanding the Fully Accessible Route (FAR) for government securities, increasing investment limits for NRIs and OCIs in listed equities, introducing a concessional forex swap facility for external commercial borrowings by public sector undertakings and extending support for FCNR(B) deposits.

The central bank also proposed restoring the time limit for realisation of export proceeds to nine months.

The Governor reiterated that the RBI does not target any specific exchange rate level and allows the rupee to be determined by market forces.

At the same time, he said the central bank remains ready to intervene whenever required to prevent disorderly market movements.

“While our objective is not to resist market-driven adjustments, we will curb excessive volatility and prevent disorderly market movements,” he said.

The RBI said liquidity conditions in the banking system remain comfortable, with average surplus liquidity standing at Rs 2.63 lakh crore since the April policy meeting.

While announcing the rationale behind policy decision, RBI Governor Sanjay Malhotra said elevated energy prices have reflected in the moderation in growth and a rise in inflation projections. However, he noted that India’s domestic economic activity has largely remained steady despite global uncertainties and higher commodity prices.

RBI projects core inflation for current fiscal (FY27) at 4.7%.

Indian equity indices ticked a bit higher after the RBI MPC announced to keep the key policy rates unchanged, with a Neutral stance. The rate-sensitive stocks, including banking and financials, continued to trade in the same range. The Nifty Bank was trading 0.60% higher, and Nifty Financial Services was trading 1% higher.

CPI inflation for FY27 is projected at 5.1%, up about 50 basis points from the earlier projection.

Quarter-wise projections:

RBI Governor Sanjay Malhotra said that firms are likely to pass on higher input costs to consumers.

RBI Governor Sanjay Malhotra said that average crude oil prices for FY27 are expected to be higher than the $85 per barrel estimated earlier in the April policy meeting.

Real GDP Growth estimates for FY27: 6.6% Vs 6.9% earlier

Q1FY27: 6.6%

Q2FY27: 6.3%

Q3FY27: 6.5%

Q4FY27: 6.8%

RBI Governor Sanjay Malhotra said that consumer price inflation (CPI) has remained below the central bank’s target despite global shocks and external uncertainties.

He added that the robust performance of the manufacturing and services sectors has been a key driver of economic growth from the supply side.

The RBI Governor Sanjay Malhotra announced that MSF & SDF Rates Maintained At 5.50% & 5%, Respectively

The RBI Governor Sanjay Malhotra announced that the Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 5.25%.

The RBI governor Sanjay Malhotra started addressing the RBI MPC meeting. Key ploicy announcement soon.

Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India said that RBI MPC may keep policy rates unchanged. However, the tone of the commentary will be closely watched.

He noted that the current inflationary pressures are largely supply-driven, stemming from elevated crude oil prices, geopolitical tensions and climate-related uncertainties, factors that are beyond the direct influence of monetary policy.

“Raising interest rates in response to such shocks could impose unnecessary costs on economic growth without materially easing inflation. Therefore, it is important for the central bank to maintain rate stability, support growth, and remain vigilant on inflation dynamics,” Baijal said.