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Informist, Friday, Jun. 5, 2026

 

NEW DELHI - Shilan Shah, deputy chief emerging markets economist, Capital Economics, said the following on the Reserve Bank of India's second bi-monthly monetary policy statement for 2026-27 (Apr-Mar) detailed Friday:

 

The Reserve Bank of India kept the repo rate unchanged at 5.25% Friday as it continues to "closely monitor developments" in the West Asia. But we think it is only a matter of time before it begins a hiking cycle.

 

The Monetary Policy Committee unanimously voted to keep the repo rate unchanged at 5.25% and maintained its "neutral" stance. A majority of analysts had expected a hold; we were among the minority anticipating a 25 basis points hike Friday.

 

RBI Governor Sanjay Malhotra flagged downside risks to the growth outlook from the West Asia conflict, though he also stated that "domestic demand remains resilient". The bigger risk appears to be upside pressure on inflation. Admittedly, the headline CPI rate came in below the RBI's 4% target in April, which may have bought the Monetary Policy Committee time to delay tightening policy.

 

But since then, the government has bowed to the inevitable and started hiking fuel prices at the pump. Broader supply chain disruption is going to start pushing underlying inflation up too. Governor Malhotra noted that "generalisation of inflation through second-round effects on expectations and wages is a distinct possibility, warranting a close vigil".

 

The RBI is also having to contend with the depreciation of the rupee. Though it has had some respite in recent days, the rupee fell last week to a record low of 96.8 against the dollar. We had suggested some measures to support the currency could be announced today and that was duly the case, with foreign institutional investors no longer being subject to long-term capital gains tax on local sovereign bonds.

 

In all, this was very much a "wait-and-see" hold. But with inflation rising and pressure on the rupee likely to remain, we think the repo rate will be hiked by a cumulative 75 bps, taking it to 6.00% by the end of the year.  End

 

Compiled by Shubham Rana

Filed by Akul Nishant Akhoury

 

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