RBI Policy
MPC seen holding repo rate Friday but hike not ruled out
This story was originally published at 16:14 IST on 1 June 2026
Register to read our real-time news.Informist, Monday, Jun. 1, 2026
By Team Informist
NEW DELHI - The Reserve Bank of India's Monetary Policy Committee is expected to keep interest rates on hold this week even as calls for a rate hike to protect the rupee have increased. The rate-setting panel is seen maintaining the neutral policy stance, giving it flexibility to respond to any shock from the war in West Asia.
Nineteen of the 24 economists and market participants polled by Informist said the Monetary Policy Committee will hold the repo rate at 5.25% at the end of its three-day meeting Friday. Five poll respondents said the committee will raise interest rates not only to defend the rupee from falling against the dollar but also because inflation is seen rising above the RBI's 4% target over the coming months.
The committee had left the repo rate unchanged at 5.25% in February and April after lowering it by 125 basis points in 2025, the largest cumulative easing in a calendar year since 2019. The repo rate was last raised in February 2023.
"The case for policy action reflects persistent BoP (balance of payments) stress, INR depreciation pressures and a forward-looking rise in inflation that could breach the 6% tolerance band later in 2026 and remain sticky thereafter," ANZ Banking Group said in a report. "With financial conditions already tightening via higher term premia and INR forwards, a proactive move can help anchor market expectations and reinforce policy credibility, alongside continued FX intervention and complementary measures to raise more external funding."
The rupee has declined sharply against the dollar this year, especially after the start of the war in West Asia on Feb. 28. While the Indian currency has recovered over the past few days, it is down nearly 6% against the dollar in 2026. It fell to a record low of 96.96 a dollar in May.
The US war on Iran has also pushed up inflationary pressures. Global energy prices have jumped since the end of February, with Indian oil marketing companies passing on the costs to retail consumers in May. While the passing of higher energy costs was limited to industry in March and April, oil retailers raised pump prices of petrol, diesel, and compressed natural gas last month as losses piled up.
WPI inflation already jumped to a 42-month high of 8.3% in April and CPI inflation is expected to rise to around 5% in May from 3.5% in April because of the hike in fuel prices.
Both the finance ministry and the RBI have flagged inflationary and growth risks from the conflict. RBI Governor Sanjay Malhotra last month said the central bank tries to look through the first-round impact of a supply-side shock, but a sustained increase in prices requires tighter monetary policy.
The minutes of the Monetary Policy Committee's April meeting, released Apr. 22, showed that none of the six members was inclined to act on rates with a rise in inflation likely following the war in West Asia.
Economists expect the RBI to raise its CPI inflation forecast for FY27 from the current 4.6?cause of the risks from the war and below-normal monsoon rains from the possibility of El Nino conditions. Some economists also see the RBI lowering its growth forecast for the current year from 6.9%.
"Given the high degree of uncertainty and the two-sided risks to growth and inflation at this stage, the "neutral" monetary stance will also remain unchanged, in our view," Kaushik Das, chief economist–India, Deutsche Bank, said in a report. "As long as the RBI is not using rate hikes for defending the rupee, we expect the MPC to exercise patience, while maintaining a vigilance on the forward-looking growth and inflation trajectory," he noted.
Given the downside risks to growth, the committee is likely to wait for the June quarter GDP data before deciding on the need for a rate hike, Das said. The June quarter GDP data will be released at the end of August. "By that time, the MPC will have a fair idea of the growth-inflation mix, monsoon progress, global oil price and geo-politics and the outlook on fiscal, BOP and rupee," he said.
The rate-setting panel will have an additional handicap at this meeting: the lack of March quarter GDP data, which will be released hours after Malhotra announces the committee's decision at 1000 IST Friday.
The statistics ministry will release the March quarter GDP data at 1600 IST Friday. The data were earlier scheduled for release on May 29. The ministry changed the date saying many companies furnish their financial statements for Jan-Mar near the end of May. According to a separate Informist Poll, India's GDP growth likely slowed to 7.3% in the March quarter from 7.8% in the December quarter, but still resilient in the face of the West Asia war.
The following are the expectations of respondents from the Jun. 3–5 meeting of the Monetary Policy Committee:
| ORGANISATION | MAY MPC MEET EXPECTATION |
| ANZ Banking Group | 25 bps hike |
| Barclays | Status quo |
| Capital Economics | 25 bps hike |
| CSB Bank | Status quo |
| Deutsche Bank | Status quo |
| DSP Mutual Fund | Status quo |
| Edelweiss Mutual Fund | 25 bps hike |
| Emkay Global Financial Services | Status quo |
| Equirus Capital | Status quo |
| HDFC Bank | Status quo |
| IDFC FIRST Bank | Status quo |
| IndiaFirst Life Insurance | Status quo |
| Kotak Mahindra Bank | Status quo |
| Moody's Analytics | Status quo |
| MUFG Bank | 25 bps hike |
| Nomura | Status quo |
| Pantheon Macroeconomics | Status quo |
| PNB Gilts | Status quo |
| SBM Bank India | Status quo |
| Standard Chartered Bank | 25 bps hike |
| State Bank of India | Status quo |
| Tamilnad Mercantile Bank | Status quo |
| Union Bank of India | Status quo |
| YES Bank | Status quo |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Written by Shubham Rana
Edited by Rajeev Pai
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