The Monetary Policy Committee (MPC) unanimously kept the policy rates unchanged and maintained neutral stance in the June 2026 policy. The tone of the policy document was expectedly hawkish, amid uncertainty owing to the West Asia conflict, the potential El Nino development and sub-par monsoons. With the escalation in the conflict and resultant surge in energy prices, the Committee pared its GDP growth projection by 30 bps to 6.6% for FY2027, which appears slightly optimistic relative to ICRA’s expectation (+6.2%). Moreover, the MPC expects the CPI inflation trajectory to be steeper than projected earlier, with inflation pegged at 5.1% in FY2027, largely in line with our forecast (+5.0%). Looking ahead, ICRA expects the MPC to remain data and development dependent, amid sizeable risks to the growth-inflation outlook. While we believe that the next move on rates is likely to be a hike, its timing would depend on how geopolitical and macro developments, including the severity of the El Nino, transmit to a generalisation of inflationary pressures; the October and December 2026 policy meetings could be live for potential rate hike(s), after there is some clarity on the monsoon impact. The RBI Governor also made several announcements to attract foreign capital, in addition to the Government’s decision to exempt interest and capital gains on Government securities (G-secs) from tax, which augurs well for the USD/INR pair.

• MPC voted unanimously for status quo: In view of geopolitical uncertainty and supply disruptions in West Asia, the MPC unanimously kept the policy repo (at 5.25%) as well as stance unchanged in the June 2026 policy. Besides, it placed upside risks to inflation (FY2027: +5.1%) and downside risks to growth (+6.6%) for the second consecutive policy review.

Source: RBI; ICRA Research