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Informist, Friday, Jun. 5, 2026

 

MUMBAI - Following is a compilation of stories on the Reserve Bank of India's monetary policy that was detailed on Friday:

 

SPECIAL STORIES

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FOCUS: RBI'S FX PACKAGE TO TURN THE TIDE IN RUPEE'S FAVOUR BUT ISSUES LINGER

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The currency market was expecting Reserve Bank of India Governor Sanjay Malhotra to pull a rabbit out of his hat in defence of the weakening rupee at the monetary policy announcement Friday, and he did exactly that. In fact, he surprised the market by pulling out all the rabbits at once. 

 

The governor announced a host of foreign capital measures, which are expected to draw bumper overseas inflows into India and turn the tide in favour of the Indian rupee at a time when it is grappling with its worst crisis in over a decade, market participants said.   

 

"The RBI unveiled a bazooka of measures today. With capital inflows incentivised, the RBI has effectively anchored the exchange rate. This will give importers some comfort and likely lead to increased hedging activity from exporters," Shailendra Jhingan, head of treasury and economic research at ICICI Bank, said. "We expect the rupee to appreciate even past 94 a dollar as these measures come into effect." 

 

Among the various measures, Malhotra announced a facility of concessional foreign exchange swap till Sept. 30 to incentivise external commercial borrowings by public sector undertakings. He also introduced a similar facility for bearing the full hedging cost to banks for raising fresh three-five year foreign currency non-resident deposits till Sept. 30. 

 

The central bank also expanded the universe of government securities under the Fully Accessible Route and removed some limits for non-resident Indians and Overseas Citizens of India in equities. It has also proposed to restore the time for realisation of export proceeds to nine months from 15 months.

 

The cherry on the top was the government exempting foreign institutional investors from paying capital gains tax on investment in government bonds. The government also exempted FIIs from paying any witholding tax on interest on such investments.

 

Together, these measures are likely to draw almost $40 billion-$50 billion worth of foreign inflows into India in the next four-five months, with the rupee expected to rise to almost 93.00 a dollar in the near term, market participants said.  

 

Of the various measures, the window for raising FCNR (B) deposits, a tool last effectively used in 2013, is most likely to attract the biggest – $20 billion-$25 billion – and fastest inflows, dealers said. The external commercial borrowing swap facility for public sector undertakings is likely to draw around $10 billion-$15 billion, they added. 

 

"Announcements around concessional FX swaps for PSU raising ECB and the RBI bearing FNCR(B) hedging cost were quite strong in our view. If these play out as expected, the consequent support to the BoP (balance of payments)  will likely be strong, which we otherwise expect would be in a deficit of over $50 billion," ANZ Banking Group said in a note.

 

However, some market participants flagged that demand for both the FCNR deposit window and external commercial borrowing swap facility may be constrained as global interest rates are still elevated.  

 

Further, the widening of foreign investor access to certain Indian government bonds and the tax exemptions may result in only modest inflows in the near term, they said. However, these measures have led to increased expectations of inclusion of Indian government bonds eligible under the Fully Accessible Route in Bloomberg Index Services Ltd.'s flagship Global Aggregate Index, which if it materialises, will potentially attract passive inflow of $20 billion to $25 billion, likely in FY28. 

 

CHALLENGES LINGER

While the slew of capital inflow measures will help address some of the external financing concerns, it will not resolve the issue of India's structural balance of payments, which has deteriorated sharply over the past year due to large capital outflows, market participants said. 

 

Before the announcement of the measures, economists had pegged balance-of-payments deficit of roughly $35 billion-$40 billion in FY26, with expectations that the deficit may widen further to around $65 billion in FY27. In FY25, there was depletion of $5 billion in foreign exchange reserves on a balance of payments basis. 

 

"We think India requires roughly $7 billion-$8 billion per month in capital inflows to balance the BoP. This is still sizeable, and while the measures may add up to $5 billion per month of incremental inflows over the next few months, it does not fill the gap entirely," Mitul Kotecha, head of Asia FX and rates strategy at Barclays, said in a note. 

 

Some market participants expect the RBI to make the most of the rupee's appreciation and unwind its large, near $100-billion, short forward dollar book, limiting the Indian currency's rise. However, some expect the central bank to come in the way of the rupee's appreciation only if it appreciates above 93 a dollar. "The RBI is likely to allow the positive impact to play through rather than sterilising it by materially reducing its forward book. Market intervention may reduce," Jhingan said. 

 

Market participants also await further details related to the FCNR deposit window and external commercial borrowing swap facility, with some fearing that certain clauses of the framework may make it difficult for NRIs to obtain as much leverage as in 2013. 

 

Further, a sustainable recovery in the domestic currency still needs lower oil prices and a weaker dollar, dealers said, adding that the eventual and long-term support for the rupee still lies in the resolution of the war between the US and Iran, which seems to be far from over for now.  

 

By Pratiksha

Edited by Avishek Dutta

 

 

FOCUS: SANGUINE MPC A RELIEF WITH RBI, GOVT STEPS THE KICKER FOR BOND TRADERS

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It was the government and the Reserve Bank of India's co-ordinated action on Friday that overshadowed the actual monetary policy decision for the bond market. Though the Monetary Policy Committee's sanguine commentary and rate hold seemed balanced and a relief as of June, some bond traders remain wary that the lack of pre-emptive rate action might come back to bite their portfolios later in the year.

 

Comments from RBI Governor Sanjay Malhotra Friday successfully dissolved the view that the central bank would use monetary policy to solve a capital account problem, dealers said. The governor did not suggest either in his statement or in the post-policy press conference that the MPC debated a rate hike to defend the rupee. In addition, he did not mention potential rate increases despite repeated warnings of rising prices. The unanimous vote on the rate decision also gave the market comfort that the committee remained some way away from increasing the repo rate from the current 5.25%. 

 

"The tone of the policy was definitely softer than probably the market consensus, despite GDP and inflation forecasts exactly matching our view," a treasury head at a private-sector bank said. "The governor probably didn't utilise some of the words or hawkish guidance that the market was looking out for, describing inflation as matter-of-factly as possible without delving into it too deeply or referring to rate hikes."

 

The consensus view heading into the policy outcome was that MPC would hold the repo rate. However, traders widely expected Malhotra to at least set the stage for a hike in policy rate in response to expectations of rising inflation later in the financial year and some participants were ready for the eventuality on Friday itself. Yields on rate-sensitive gilts tumbled Friday, marking their best day in two months, after the status quo on the repo rate at 5.25%. The five-year benchmark 6.36%, 2031 bond fell by over 15 basis points Monday, despite only a marginal fall in the 10-year benchmark gilt.

 

Most of all, the bond market rejoiced Friday that the RBI did not employ a rate hike in its defence of the rupee. The bevy of measures from the central bank and the government to attract foreign capital also reduced the quantum of rate hikes that some bond traders expect from the MPC in financial year 2026-27 (Apr-Mar).

 

Higher interest rates were seen attracting more foreign portfolio investment. The rupee has tumbled as much as 8% against the dollar this year to a record low of 96.96 per dollar in May despite large RBI dollar sales due to foreign investors exiting Indian markets and expectations of a wider current account deficit.

 

Instead, Malhotra Friday announced concessions for public-sector undertakings to raise bonds in foreign currency and said the RBI would bear the hedging cost of authorised dealer banks when they raise 3-5-year foreign currency non-resident deposits until Sept. 30. The central bank also removed most restrictions on bond investment under the General Route, expanded the Fully Accessible Route, and reduced the timeline to realise export proceeds. Piling on, the government exempted foreign portfolio investors from capital gains and withholding tax on government bonds, also easing rules for equity investment from non-resident Indians and Overseas Citizens of India.

 

It might only be a temporary reprieve, if the war in West Asia continues to remain in suspended animation. Malhotra referred to the uncertainty over the normalisation of supply chains, leading to inflationary pressures in the Indian economy. The RBI also raised its FY27 CPI inflation forecast to 5.1% Friday from 4.6% in April, and retained its guidance on upside risks. With the MPC skipping a rate hike in June, traders are also concerned domestic monetary policy may fall behind and have to react with harsher measures to high inflation – including outsize rate hikes.

 

The underlying inflation makes the case for the repo rate to be hiked as soon as August, dealers said, particularly in the vital Strait of Hormuz remains effectively shut for commercial shipping. The current nominal repo rate is only 5.25%, while CPI inflation is expected to average 5.1% in Jul-Sept and 5.9% in the December quarter, pointing to a negative real rate of interest. This state, where savers are disincentivised while consumption is encouraged, is seen stoking price rise further.

 

In such an environment, traders said bond yields and overnight indexed swap rates will continue to price in a 50-75 basis point repo rate increase until March. This may limit the downside on the five-year gilt yield to 6.50-6.55% from 6.65% Friday. The 10-year gilt yield is also seen falling to only 6.85% from 6.98% Friday.

 

On the other hand, with the MPC slow-playing its policy response, the 10-year bond yield may not rise above 7.05% unless Brent crude futures pop above multi-year highs of $120 a barrel – a level which the bond had approached with crude near $100 a barrel. Rate hikes – if they come by October or December – are not seen threatening gilt yields higher. 

 

"...the view is that some rate hikes will be needed but only to adjust to the higher inflation outlook. Specifically, there is no case to us for using this as any sort of 'currency defence'," Suyash Choudhary, chief investment officer – Fixed Income at Bandhan Asset Management Co., said in a report. "So long as RBI/MPC communication is clear in not letting market expectation overshoot the trajectory, it really doesn't matter to the current level of market yields whether the repo rate is somewhat higher."

 

CATALYSING DEMAND

Outside of the monetary policy response, the regulator may have generated significant demand for bonds from foreign investors, especially as its measures are seen stabilising the rupee's fall, dealers said. The RBI reintroduced the 15- and 40-year tenure gilts to the Fully Accessible Route, which are eligible for inclusion into global bond indices and have no limits for foreign investment. It also added fresh issuances in the 30-year tenure to the Fully Accessible Route for the first time.

 

The government's waiver of the withholding tax of 20% improves FPIs' return on the 10-year bond by around 140 basis points, a material increase. With capital gains taxes gone, Euroclear – a marquee offshore clearinghouse – may also look to introduce trade in India's gilts, provided the RBI accepts. India's bonds have also been recently integrated with global bond trading platform such as MarketAxess and Tradeweb.

 

Bloomberg Index Services sought further efficiencies in India's market infrastructure and improved access when it held off on including India's bonds to its flagship Global Aggregate Index. With these measures in place, the index provider is likely to give the nod for inclusion when it provides its next update in mid-2026. Bets on this inclusion gathered pace Friday and may ultimately drag down the 10-year gilt yield to 6.75%. With the market assuming a 0.7% weight on the massive index, which is tracked by $3 trillion in funds, India is set to receive over $20 billion of passive investments alone. 

 

"Crucially, the expansion of the Fully Accessible Route-bond base opens the door for foreign inflows across longer tenors, while domestic institutions such as banks, insurers, and pension funds remain underinvested," Sneha Pandey, fund manager – fixed income at Quantum Mutual Fund, said. "With the RBI likely to purchase close to INR 5 trillion of gilts via OMOs (open market operations) in the second half of FY27, the demand-supply dynamics for G-secs look materially improved."

 

WORRYWARTS

Though Pandey held onto her view, most traders expect the foreign exchange inflows from the RBI's measures will improve durable liquidity in the Indian banking system. This reduces the need for the central bank to step in with further injections such as bond purchases, which featured prominently in its liquidity management in FY26.

 

Moreover, the long-term bonds added to the Fully Accessible Route are unlikely to attract large inflows, similar to the situation when the 15- and 40-year bonds were dropped from the bucket in July 2024. Without the Bloomberg index inclusion, inflows in the near-term from the measures alone are seen insipid.

 

"The change in taxation and FAR limits for FPI debt investments are more medium-term measures... Moreover, with chances of a rate hike increasing, high credit demand in the system and continuing bond demand and supply mismatch, rising global yields, limited space for further OMOs by RBI could all put a floor for the 10-year bond yield," HDFC Bank said in a note. The bank's analysts see the 10-year gilt at 7.20-7.40% by the year-end.  End

 

By Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

 

SPOTLIGHT: RBI MAY NOT ALLOW LIQUIDITY TO BALLOON AFTER CHANGE IN COMMENTARY

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The Reserve Bank of India is likely to keep systemic liquidity in a surplus of up to 1% of banks' net demand and time liabilities but prevent it from rising further. Traders expect the structural measures for the rupee that the RBI announced Friday to keep the liquidity in the banking system at a comfortable level, without needing frequent injections from the central bank.

Traders had mixed expectations from the RBI heading into the Monetary Policy Committee's rate decision. While some expected medium-term liquidity support through variable rate repo auctions of up to 90 days, others had feared the central bank may begin draining banking system liquidity as a first step to curbing the rise in inflation. The RBI expects CPI inflation to average 5.1% in the financial year 2026-27 (Apr-Mar), above its 4% medium-term target. RBI Governor Sanjay Malhotra's comments did suggest a more cautious approach from the central bank. 

 

"On the liquidity front, interestingly, the governor's shift in language--from ensuring "proactive and sufficient" liquidity to maintaining "appropriate" liquidity--reinforces the overall hawkish undertone of the June monetary policy," Siddhartha Sanyal, chief economist and head of research at Bandhan Bank Ltd., said.

 

However, market participants expect that the RBI would continue to provide short-term variable rate repo auctions as in the past to support the banking system's liquidity at the time of monthly and quarterly tax outflows. In fact, the RBI Friday announced that it would conduct a four-day VRR auction for INR 750 billion Monday in the wake of excise duty outflows.

 

The RBI will have to continue its balancing act as it seeks to maximise growth while curbing inflation, dealers said. The systemic liquidity surplus had reached an almost four-year high of INR 5.55 trillion in April. A repeat of such conditions is not expected following the change in commentary, with money market rates rising above the policy repo rate of 5.25% in the latter part of May and surplus liquidity falling.

 

Malhotra clearly flagged the risks to the economy from the continuing war in West Asia and the resultant rise in crude oil prices. The RBI has lowered its GDP estimate for FY27 to 6.6% from 6.9?rlier while raising its CPI estimate to 5.1% from 4.6% in April.

 

"They (the RBI) will give adequate liquidity, not excess or not very low also because they have to preserve growth," Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap LLP., said. "They will still boost growth and at the same time, to control inflation, they will not allow excess liquidity."

 

MORE FX, FEWER OMOs

The governor's comments suggested a liquidity surplus would prevail in June. The government's spending from the central bank's record surplus transfer of INR 2.87 trillion for FY26 will add to liquidity in the near term, Malhotra said in his statement Friday, as will the return of currency during the monsoon season.

 

Moreover, the RBI and the government announced several steps in tandem Friday to attract foreign capital. These measures to support the rupee are expected to bring in $40 billion-$50 billion of inflows. This will translate to a substantial increase in durable liquidity in the banking system, dealers said.

 

If this leads to the weighted average call rate drifting to the lower end of the liquidity adjustment facility corridor, the RBI may even drain liquidity through variable rate reverse repo auctions. The central bank may sterilise some of the foreign capital inflows by unwinding its dollar-rupee buy-sell swaps, though most of the inflows are expected to be allowed to hit the market for the rupee to appreciate.

 

"We expect liquidity conditions to remain comfortable over the coming quarter on account of capital flows (and possible RBI intervention to absorb some of these inflows) and reduced pressure on the rupee on account of the measures announced," HDFC Bank said in its June policy review. "On the other hand, the extent to which the RBI chooses to reduce its forward book size (which is a drain on liquidity) could determine the final impact on liquidity conditions."

 

Before the June policy, economists expected the RBI to infuse around INR 7 trillion of durable liquidity into the banking system in FY27 by purchasing bonds through open market operations to counter the draining of systemic liquidity caused by the central bank's persistent intervention in the foreign exchange market. With the rupee expected to stabilise, money managers do not see a great need for such durable liquidity infusion measures.

 

"I don't see any real reason for RBI to conduct OMOs, because successively we have seen that the concerns regarding fiscal slippage are abating," Killol Pandya, head of fixed income at JM Financial Mutual Fund, said. "As our concerns regarding fiscal slippage abate, as market liquidity improves, as government takes steps, RBI takes steps, and we find that as we go through time the things are not as bad as we anticipated, then the countercyclical measures (such as OMOs) are also not required."

 

HDFC Bank in its report said it continues to expect liquidity conditions to tighten during the second half of FY27, with the RBI's Monetary Policy Committee likely to begin hiking rates soon in response to higher inflation. The rate-setting panel Friday held the policy repo rate at 5.25%.  End

 

By J. Navya Sruthi

Edited by Rajeev Pai

 

 

RBI POLICY STORIES

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MPC HOLDS REPO RATE; SEES CONSIDERABLE ECON RISKS FROM IRAN WAR

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The Reserve Bank of India's Monetary Policy Committee Friday left the policy repo rate unchanged at 5.25% in a unanimous decision even as risks to growth and inflation rose from the war in West Asia, said Sanjay Malhotra, the central bank's governor. The committee also retained its 'neutral' policy stance.

 

Malhotra said there are considerable risk to inflation and growth from the conflict in West Asia. While domestic activity remained largely steady despite the outbreak of the war, high energy prices and supply disruption are likely to weigh on the economy, Malhotra said. 

 

Inflation is seen rising because of the high energy prices even as underlying inflation pressures remain benign at this point, the governor said. The Monetary Policy Committee expects the impact of supply shocks to wane March quarter onward, Malhotra said. 

 

The rate-setting panel's decision was on expected lines. Most economists and market participants polled by Informist expected the Committee to maintain the repo rate, even as some projected a 25-basis-points rate hike to defend the rupee and in view of higher inflation. The committee lowered the repo rate by 125 bps in 2025, the most in a calendar year since 2019. It last raised interest rates in February 2023. 

 

The RBI lowered its GDP growth forecast for the current financial year by 30 bps to 6.6%, with growth seen between 6.3% and 6.8% throughout the year. India's GDP is estimated to have grown 7.6% in FY26, the provisional data for which will be released at 1600 IST Friday along with the March quarter growth print.

 

The central bank raised its CPI inflation projection for FY27 by 50 bps to 5.1%, because of higher energy prices and the expectation of below-normal monsoon rains, Malhotra said. CPI inflation is seen rising to 5.9% in the December quarter, near the upper bound of the RBI's 2-6% tolerance band with 4% as the medium-term target. 

 

"Looking ahead, elevated energy and other commodity prices coupled with continued supply disruptions are likely to affect economic activity," the monetary policy statement said. "The full impact, however, will depend on the duration of the conflict, time taken for normalisation of supply chains and the burden-sharing approach among the stakeholders."

 

Malhotra announced measures to bring in foreign capital amid pressure on the Indian rupee. The cental bank has included all new issuances of 15-, 30- and 40-year tenor government bonds in the fully accessible category for foreign investors. "These measures along with the tax benefits provided by the government this morning should help attract foreign capital for government borrowing," Malhotra said. The government Friday removed the capital gains tax for foreign investors in government bonds.

 

Malhotra also announced increased limits for investment by non-resident Indians and overseas citizens of India in equity instruments traded on the stock market without Securities and Exchange Board of India registration. "While these measures are expected to strengthen our balance of payments, we will continue to make the right policy adjustments to further promote exports and attract and incentivise capital inflows," Malhotra said. 

 

With the repo rate left unchanged at 5.25%, the Standing Deposit Facility rate remains at 5.00% and the Marginal Standing Facility and bank rate at 5.50%. Minutes of the MPC's June meeting will be published on Jun. 19. The next meeting of the MPC is scheduled for Aug. 3-5. 

 

Reported by Aaryan Khanna, Pratiksha, and Shubham Rana

Edited by Akul Nishant Akhoury

 

 

FY27 GROWTH VIEW CUT TO 6.6%; W ASIA WAR TO WEIGH ON ACTIVITY

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The Reserve Bank of India Friday lowered its forecast for India's GDP growth in 2026-27 (Apr-Mar) by 30 basis point to 6.6%, reflecting the risks arising from the war in West Asia. The central bank revised downwards its growth forecast for all four quarters of FY27 by 20-50 bps. 

"Prolonged global supply chain disruptions, heightened volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook," RBI Governor Sanjay Malhotra said. "Elevated energy prices coupled with global supply constraints are having adverse spillovers on economic activity."

 

The RBI now projects 6.6% growth in the June quarter, 20 bps lower than the April foreacast of 6.8%. For the September quarter, the RBI sees growth at 6.3%, 40 bps lower than the 6.7% projected earlier. The RBI cut the growth projection for the December quarter by 50 bps to 6.5% and for the March quarter by 40 bps cut to 6.8%.

 

With growth seen lower than previously projected, and inflation seen higher, the RBI's Monetary Policy Committee Friday unanimously voted to leave the policy repo rate unchanged at 5.25%. The panel also decided to retain the "neutral" stance, even as risks to growth and inflation rose from the war in West Asia, Malhotra said. 

 

There are considerable risks to the baseline assessment of inflation and growth due to the uncertainty about the duration and intensity of the conflict, magnitude of its spillover effects, and the pace of restoration of supply chains, the RBI governor said. While import diversification in affected commodities is likely to improve supply, it would come at a higher cost, he added. 

 

"Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity," Malhotra said. "The full impact, however, will depend on the duration of the conflict, time taken for normalisation of supply chains and the burden-sharing approach among the stakeholders."

 

Malhotra said the pass-through of higher energy prices to retail products is already evident, which, coupled with projected deficiency in the south-west monsoon, will hit agricultural production and rural demand.

 

For now, high frequency indicators suggest domestic economic activity has remained largely steady since the outbreak of the war, the governor said. India's manufacturing and services Purchasing Managers' Indices suggest that "both sectors continue to be resilient, and business expectations are still positive," he added. India's services sector activity rose to a six-month high at 59.8 in May and the manufacturing sector activity grew to 55.0 last month.

 

"While domestic demand remains resilient and manufacturing and services sectors activity continue to expand, there are incipient signs of moderation in some sectors as suggested by high frequency indicators," Malhotra said. Having said that, the Monetary Policy Committee will remain data-dependent and closely monitor developments, he added.

 

The global economy has been shaped by heightened uncertainty, disruptions to key trade routes, and supply chains over the past few months, Malhotra said. "Global environment has deteriorated since the last policy meeting with the conflict lingering amidst a fragile truce," he said. The economic outlook remains clouded by the continuing geopolitical impasse and without any meaningful resolution in the West Asia situation. 

 

However, India remained confident to withstand these shocks with minimum pain. "Indian economy has entered this episode of global turbulence with much better fundamentals than in previous similar episodes," Malhotra said. At the same time, it is important to address these challenges and take them as an opportunity to further enhance resilience, he added.

 

While the global economic conditions have adversely impacted the domestic growth-inflation outlook, Indian economy at this point is "relatively strong", Malhotra said. "We shall put in place policies to meet the challenges while taking measures to further strengthen the macroeconomic fundamentals of the country," he said.  

 

Reported by Shweta

Edited by Deepshikha Bhardwaj

 

 

RAISES FY27 CPI VIEW TO 5.1%, Q1 TO 4.2% AS WAR-LED RISKS LINGER

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The Reserve Bank of India Friday raised the outlook for 2026-27 (Apr-Mar) headline inflation by 50 basis points to 5.1% as risks from West Asia war-led uncertainties have intensified since the Monetary Policy Committee last met in April, Governor Sanjay Malhotra said. Besides the pressure on inflation from higher energy prices and supply-side bottlenecks, sub-normal rainfall and El Nino conditions also pose downside risks. The central bank raised the inflation forecast for Apr-Jun by 20 bps to 4.2%.

 

"The underlying inflation pressures continue to remain benign at this juncture," Malhotra said after the second bi-monthly meeting of the Monetary Policy Committee for FY27. "However, generalisation of inflation through second-round effects on expectations and wages is a distinct possibility, warranting a close vigil," he said. "The outlook also remains clouded by the subnormal south-west monsoon forecast and El Nino risks."

 

The central bank's view on inflation for FY27 is broadly in line with economists' view, who now expect inflation to average 5% this year, with upside risks if the West Asia crisis lingers for longer. The US-Israel war on Iran, which started on Feb. 28, has dented oil and gas supplies to the world, including India. Global crude oil prices have surged to $123 a barrel after the war started from the sub-$73 a barrel before Feb. 28. As a result, India, which imports nearly 50% of its crude oil and around 90% of cooking gas imports through the now-disrupted Strait of Hormuz, is facing one of the worst crises in decades.

 

According to Malhotra, during the last policy meeting in April, global crude oil prices were seen averaging $85 per barrel, which is now seen at $110 per barrel. This will exert direct pressure on headline inflation, along with second-round effects from higher input costs and freight charges, among others. "Looking ahead, elevated energy and other commodity prices coupled with continued supply disruptions are likely to affect economic activity," Malhotra said. 

 

Taking into account the growth-inflation dynamics, the Monetary Policy Committee on Friday left the policy repo rate unchanged at 5.25% in a unanimous decision, while also retaining the "neutral" policy stance. "Although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge. Accordingly, the MPC voted to keep the policy rate unchanged," he said. "At the same time, the MPC will continue to remain data-dependent and closely monitor the developments, including supply side pressures getting embedded in the general price level and inflation expectations."

 

The quarterly break-up of the central bank's latest inflation forecasts is as follows--4.2% for Apr-Jun, 5.1% for Jul-Sept, 5.9% for Oct-Dec and 5.4% for Jan-Mar. It had previously forecast inflation in the second quarter of FY27 to average 4.4%, the third quarter at 5.2%, and the fourth quarter at 4.7%. Malhotra also projected core inflation to average 4.7% in FY27, 30 bps higher than the earlier projection. "...there are considerable risks to the MPC's baseline assessment of inflation and growth due to the uncertainty about the duration and intensity of the conflict, magnitude of its spillover effects and the pace of restoration of supply chains," the governor said.

 

Given this situation, headline inflation is expected to be near the upper tolerance band of 6% in Oct-Dec, and the impact of the supply shock is expected to wane Jan-Mar onwards, the central bank chief added. 

 

Headline inflation currently remains below the 6% target despite the global shock, as the pass-through of higher crude oil prices to domestic prices has been limited. In April, CPI inflation rose marginally to 3.5% from 3.4% in the previous month, but WPI inflation jumped much higher to a 42-month high of 8.3% in April from 3.9% in March. April marked a divergence between WPI and CPI inflation after they had moved broadly in line over the past year, due to industries facing higher fuel price pressure, not at the retail level.

 

That said, the pass-through of higher energy prices to retail products is already evident, Malhotra said. The partial pass-through of higher global crude oil prices to domestic pump prices of petrol and diesel in May, and increased prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others, could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs.

 

Oil marketing companies, after absorbing the higher crude oil prices for more than 75 days, increased the retail prices of petrol and diesel by INR 7.35 per litre and INR 7.53 per litre, respectively, in four tranches over the second half of May. "The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second-order effects, would get reflected in CPI inflation in the coming months," the monetary policy statement said.

 

Food inflation, which guided monetary policy action for the most part of 2023 and 2024, had been benign for a while. The risks of a lower monsoon and a strong El Nino rendered the food inflation outlook "uncertain", according to Malhotra. Adequate stock of foodgrains and satisfactory reservoir levels, however, provide some comfort, he added. 

 

All said, the rising inflation could also drag the purchasing power of households and eventually bring down consumption in the economy. According to Malhotra, while no meaningful resolution of the West Asia war adversely impacted the domestic growth-inflation outlook, the economy at this point is relatively strong. "We shall put in place policies to meet the challenges while taking measures to further strengthen the macroeconomic fundamentals of the country," the governor said.  End

 

US$1 = INR 95.40

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

 

NOT ADVISABLE TO ACT ON EVERY DEVIATION FROM CPI AIM – MALHOTRA

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The Reserve Bank of India does not take action for every small or large deviation from its medium-term inflation target of 4%, Governor Sanjay Malhotra said Friday. Even as the central bank sees inflation rising to over 5% in the current financial year, the 4% target is not in abeyance, Malhotra told reporters. 

 

"The target is to be met over a period. It's a medium-term kind of a target," Malhotra said. "And it is not advisable to take action for each and every small, or large, especially small, deviations from the target because that can have consequences which can be disproportionate for growth," the RBI governor said after announcing the Monetary Policy Committee's decision to leave the policy repo rate unchanged at 5.25%.

 

The RBI Friday raised its headline inflation forecast for 2026-27 (Apr-Mar) by 50 basis points to 5.1%, considering the mounting pressure due to the ongoing West Asia war. Besides the pressure on inflation from higher energy prices and supply side bottlenecks, sub-normal rainfall and El Nino conditions also pose downside risks.

 

Not only is the CPI inflation target "not in abeyance" it is also "sacrosanct", Malhotra said. "We have to look at it over a little longer period. It is not possible or desirable to have it pegged in a very small range, and that's why we have this range," Malhotra said.

 

Considering the geopolitical situation, the central bank will be dependent on the incoming data while deliberating on interest rates going ahead. "We have to watch and see as to whether there's shock in supply," the RBI Governor said. The RBI is monitoring the war situation – whether the war is going to persist or going to wane away. The central bank " will be very watchful if inflation is getting generalised, building into expectations," Malhotra said. 

The RBI Governor, however, admitted that the current scenario posts an adverse case for interest rate hike than ealier. Asked if the possibility of a rate hike was discussed in the meeting, Malhotra said the purpose of Monetary Policy Committee meeting is to discuss all possibilities on interest rates.

 

For its inflation and growth forecasts, the central bank has assumed crude oil prices for FY27 at $95 per barrel, higher than the $85-per-barrel estimate assumed in April. Global crude oil prices have averaged around $100 per barrel in the last two months, much higher than sub-$73 a barrel before the war broke out. According to Malhotra, crude oil prices in FY27 are expected to average "substantially higher" than what was assumed during the Monetary Policy Committee's meeting in April.

 

Despite the crude oil price shocks, India stands in a better place compared to other nations, Malhotra said. Having said that, the Monetary Policy Committee is closely watching the restoration of crude oil supply and the impending monsoon. The committee is also monitoring the pass-through of higher prices to consumers, the governor said. 

 

Reported by Shweta

Edited by Deepshikha Bhardwaj

 

 

FOREX SWAP, HEDGING RELIEF FOR PSUS TO BOOST CAPITAL INFLOWS

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To attract foreign capital inflows and strengthen the domestic currency, the Reserve Bank of India governor announced several measures after the Monetary Policy Committee's second bi-monthly meeting of 2026-27 (Apr-Mar) as widely expected. For external commercial borrowings, a concessional forex swap facility will be made available to public sector undertakings till Sept. 30 to incentivise external commercial borrowings. Authorised dealer banks will also get a similar facility to cover the full hedging cost Sept. 30 for raising fresh three- to five-year foreign currency non-resident (Bank) deposits.

 

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

 

Further, the investment limits for non-resident Indian and overseas citizens of India in equity instruments traded on the stock market without Securities and Exchange Board of India registration have been increased. The same facility will now also be extended to all individual persons resident outside India on a par with NRIs and overseas citizens of India. 

 

To attract stable long-term foreign capital flows, the Department of Economic Affairs also notified changes Friday to the Foreign Exchange Management Rules. The new rules will allow individual persons resident outside India to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme, a route that was so far available only to NRIs and overseas citizens of India, a government release said.

 

The investment limit will also be increased for an individual Persons Resident Outside India under this scheme to 10% from 5% in any company, with an overall investment limit for all individual Persons Resident Outside India to 24%, from the current 10%, it added.

 

These policy initiatives including recent trade agreements with major trade partners, opening the insurance sector to 100% foreign direct investment, the ethanol blending programme, the push for energy transition, easing of FDI norms for bordering countries, liberalisation of the external commercial borrowings framework are expected to strengthen India's balance of payments, Malhotra said.

 

"While these measures are expected to strengthen our balance of payments, we will continue to make the right policy adjustments to further promote exports and attract and incentivise capital inflows," Malhotra said. 

 

Reported by Vaishali Tyagi

Edited by Akul Nishant Akhoury

 

 

MAINTAINS LIQUIDITY COMFORT, ANNOUNCES FX SWAP SUPPORT

======================================================

Liquidity conditions in the banking system remain comfortable and will be actively managed to support the needs of the economy, Reserve Bank of India Governor Sanjay Malhotra said on Friday. Liquidity in the banking system has remained comfortable, with system liquidity, as measured by the net position under the liquidity adjustment facility, at an average daily surplus of INR 2.63 trillion since the Monetary Policy Committee's last meeting, Malhotra said. 

 

To further support liquidity, the central bank announced a concessional foreign exchange swap facility. "A facility of concessional forex swap will be provided till 30th September 2026 to incentivise ECBs (external commercial borrowings) by PSUs (public sector undertaking)," Malhotra said. 

He said liquidity conditions have been actively managed by the central bank through a mix of durable and transient measures. "...proactively undertook durable and transient liquidity measures to ensure appropriate liquidity in the banking system." Liquidity is expected to remain supported by evolving factors, including government spending. "Drawdown of government cash balances after the RBI's surplus transfer and the return of currency during the monsoon season will aid banking system liquidity in the nearterm," Malhotra said. 

 

"The Reserve Bank would ensure appropriate liquidity in the banking system to meet the productive requirements of the economy," he said, adding that money market conditions have remained stable. "Since the April meeting, the weighted average call rate traded within the policy corridor," the governor said. 

On Friday, the Monetary Policy Committee decided to keep key policy rates unchanged, with the repo rate at 5.25%. Accordingly, the standing deposit facility rate remains 5.00%, while the marginal standing facility rate and bank rate are unchanged at 5.50%. 

 

The central bank has conducted 10 variable rate repo auctions in less than a month and infused transient liquidity of INR 3.70 trillion. All of it has already been reversed. 

 

Reported by Shumaila Firoz 

Edited by Avishek Dutta

 

 

TO UP FIIS' INVEST, RBI TO ADD NEW 15-, 30-, 40-YR GILTS IN FAR

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As the Centre and the Reserve Bank of India look to shore up foreign capital in the country, RBI Governor Sanjay Malhotra Friday said the central bank will include all new issuances of 15-, 30- and 40-year Indian government bonds under the Fully Accessible Route. In 2020, the central bank had introduced the Fully Accessible Route to allow non-resident investors to purchase specific Indian dated securities without restrictions. Limits on short-term investment, concentration and individual securities on foreign portfolio investors' purchases under the general route are in the process of being removed, Malhotra also said.

 

"These measures, along with the tax benefits provided by the government this morning, should help attract foreign capital for government borrowing," Malhotra said in his monetary policy statement. Friday, the Centre exempted foreign institutional investors from paying capital gains tax on investment in gilts, while also exempting these investors from paying withholding tax on interest of these bonds.

 

Currently, the Fully Accessible Route includes 50 bonds, with the highest maturity bond being the 7.37%, 2054 sovereign green bond. The newly issued 6.94%, 2036 gilt is also under this list. The current 15-year benchmark 6.68%, 2040 bond is not part of this list, neither is the 7.24%, 2055 gilt. Foreign portfolio investors have net sold gilts worth INR 65.72 billion through the fully accessible route, since the US and Iran exchanged strikes in the Gulf on Feb. 28, according to data from Clearing Corp. of India. This number does not reflect the hefty sales during the initial days of the conflict, as investors have bought gilts on recent reports of likely tax incentives from the Centre.  

 

FPIs currently have three channels of investment in Indian debt, namely; the general route, the voluntary retention route, and the Fully Accessible Route. Considering the three routes of investment, foreign portfolio investors pumped INR 161 billion into Indian debt in 2025-26 (Apr-Mar), as per the RBI's annual report released last week. As of Mar. 31, FPIs utilised 12.7% of their limit on holdings in Indian debt through the general route, down from 14.5% the previous year, as per the report.

 

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

 

 

EXPECT REASONABLE INFLOWS FROM FOREIGN CAPITAL STEPS – MALHOTRA

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The Reserve Bank of India is not targeting any particular quantum of inflows from the several foreign capital measures announced Friday, but expects it to be healthy and reasonable, Governor Sanjay Malhotra said. All these measures will result in a healthy and much better balance of payments this year, he added. 

 

"We are not targeting any particular amount, but we are hopeful of reasonable flows the various measures announced today," he said at the post-policy press conference. "As a result of all these measures, we expect healthy flows, not only in this short period we have given for ECBs (External Commercial Borrowings) and FCNR (Foreign Currency Non-Resident) B deposits, but there have been measures for equity as well as government bonds. These are measures that have been taken earlier," he added.  

 

The RBI Friday announced a slew of measures to garner capital inflows into India, in line with market expectations. The measures come at a time when the Indian rupee has fallen over 5% against the dollar in 2026 so far, due to higher crude oil prices and sustained foreign outflows.

 

Among the various measures, Malhotra Friday announced a facility of concessional foreign exchange swap till Sept. 30 to incentivise external commercial borrowings by public sector units. He also introduced a similar facility for bearing the full hedging cost to banks for raising fresh three-five year foreign currency non-resident deposits till Sept. 30. 

 

The central bank also expanded the universe of 'specified securities' for government securities under the Fully Accessible Route, by including all new issuances of 15-, 30- and 40-year tenor bonds. Further, limits for investment by Non-Resident Indians and Overseas Citizenship of India in equity instruments traded on the stock market without Securities and Exchange Board of India registration were also increased. The same facility has also been extended to all individual Persons Resident Outside India. Along with this, the government earlier in the day also exempted foreign institutional investors from paying capital gains tax on investment in government bonds. 

 

According to Malhotra, the public sector units were incentivised to raise offshore capital as their benefits can be widespread. The benefits, he hoped, extend to clients as well in the form of better rates for deposits by non-residents in foreign currency. We expect banks to pass on the benefits from lower hedging costs to clients, he said, adding that the central bank was not targeting a particular level of NRI deposits due to the incentives. 

 

While the central bank took numerous measures to improve capital inflows, the governor dismissed speculations of any potential measures to restrict capital outflows. As such, the governor maintained that the central bank will intervene to curb speculation in the forex market, if needed. He reiterated that the RBI will intervene when the speculation is excessive and when the currency is moving disorderly. The RBI is prepared to maintain an orderly movement in the rupee, he said.  

 

Malhotra also said that currently, there is no proposal to discontinue the cap on onshore net open positions of banks. The RBI had in March rolled out regulatory measures to curb volatility in the exchange rate, including putting a cap of $100 million on onshore net open positions of banks. 

 

Despite the stress on the rupee, the central bank chief said that the latest reserves are "sufficient" and adequate to cover 11 months of imports and over 89% of external debt. Going forward, he said that the RBI does not expect pressure on reserves, "but are always prepared" to take action if needed. India's total reserves were $681.4 billion as of May 29, much lower than the record $728.5 billion held just before the war broke out on Feb. 28. 

 

The governor also said that the rupee was not entirely undervalued, although by some accounts, it is. He said this in the context of his earlier comment, where he mentioned that it is "reasonable" to think that the rupee is not overvalued. "If anything, one could argue that the rupee has become undervalued, both in nominal as well as in Reer (real effective exchange rate) terms," he had said in an interview last month. The rupee's real effective exchange rate, based on a basket of 40 currencies in terms of trade-based weights, fell for the fifth consecutive month in April to a near 13-year low. The real effective exchange rate index was 90.96 in April, down from 92.57 in March. 

 

Reported by Priyasmita Dutta and Pratiksha

Edited by Akul Nishant Akhoury

 

 

PROPOSAL FOR POLYMER NOTE CURRENCY UNDER CONSIDERATION

======================================================

The proposal to introduce polymer note currency is under consideration, Reserve Bank of India Governor Sanjay Malhotra said at a press conference Friday after the conclusion of the Monetary Policy Committee's second bi-monthly meeting for 2026-27 (Apr-Mar).

 

"Whatever new articles have come there is some truth in it, but there is no decision...it is only under consideration," Malhotra said. "We are examining the pros and cons and whether it will be worthwhile to do it.. it's still at a preliminary stage."

 

The governor said the central bank has sufficient currency to fill and refill automated teller machines and bank branches. If any ATM runs dry or faces a cash shortage, the RBI would send currency there, Malhotra said. "We have a plan...every year we build a plan of what the requirement of currency is, and that is provided to the banks as and when it is required...but certainly if there is a shortage, we will certainly ensure that the shortage is met." 

 

Reported by Meera Nair

Edited by Avishek Dutta

 

 

GOLD RESERVES MARGINALLY UP, NO SALE, SAYS GOVERNOR

====================================================

The Reserve Bank of India has not sold gold and its gold holdings have risen marginally, Governor Sanjay Malhotra said at the press conference Friday at the conclusion of the Monetary Policy Committee's second bi-monthly meeting for 2026-27 (Apr-Mar).

 

"There was some news... that we have sold gold or something, so there is no such sale," Malhotra said. "There is only a marginal increase in our gold holdings." The RBI gives data for gold and foreign exchange reserves weekly, which includes the price, Malhotra said.

 

The RBI Wednesday denied media reports suggesting that it sold gold reserves worth $12 billion, clarifying that its physical gold holdings remain unchanged at 880.52 tonnes. As on May 22, the value of the central bank's gold holdings fell $4.53 billion on week to $114.79 billion. 

 

Asked if the RBI is thinking about making the gold monetisation scheme more lucrative, Malhotra said no proposal for the gold monetisation scheme is currently under consideration. 

 

Reported by Nandini Sinha

Edited by Rajeev Pai

 

  

HAVE CLEAR POLICY ON DIFFERENTIAL INTEREST RATES ON DEPOSITS

============================================================

The Reserve Bank of India has a clear policy on differential interest rates on deposits, Governor Sanjay Malhotra said on Friday, addressing a question at a post-policy press meeting. The governor said that banks could offer differential rates on deposits transparently. 

 

"We have to be transparent at the same time, where you have to display them to everyone clearly. Any differential rate beyond that if someone is giving is certainly not acceptable," Malhotra said. 

 

"We have a very persistent and very clear policy for deposits as to when they can have differential rates. I think certain categories of people, like senior citizens and depending on tenor...," Malhotra told reporters.

 

Differential rates of interest can be paid on single term deposits of INR 1.5 million and above and not on the aggregate of individual deposits where the total exceeds INR 1.5 million. Banks can formulate special fixed deposit schemes specifically for resident Indian senior citizens offering higher and fixed rates of interest as compared to normal deposits of any size.

 

On a question related to HDFC Bank's governance, Malhotra said, "...we do not answer any entity or bank-specific questions." 

In a unanimous decision Friday, the RBI's Monetary Policy Committee left the policy repo rate unchanged at 5.25% and retained its 'neutral' policy stance. 

 

Reported by J. Navya Sruthi

Edited by Avishek Dutta

  
 

SEVERAL POLICY INITIATIVES EXPECTED TO STRENGTHEN INDIA'S BOP

=============================================================

Several policy initiatives are expected to strengthen India's balance of payments, Governor Sanjay Malhotra said Friday after the Monetary Policy Committee's second bi-monthly meeting of 2026-27 (Apr-Mar). These included recent trade agreements with major trade partners, opening the insurance sector to 100% foreign direct investment, the ethanol blending programme, the push for energy transition, easing of FDI norms for bordering countries, liberalisation of the external commercial borrowings framework, and other measures.

 

"While these measures are expected to strengthen our balance of payments, we will continue to make the right policy adjustments to further promote exports and attract and incentivise capital inflows," Malhotra said. 

 

To attract foreign capital, the RBI governor announced that the investment limits for non-resident Indian and overseas citizens of India in equity instruments traded on the stock market without Securities and Exchange Board of India registration have been increased. The same facility will now also be extended to all individual persons resident outside India on a par with NRIs and overseas citizens of India. 

 

For external commercial borrowings, public sector undertakings will get a concessional forex swap facility till Sept. 30. Authorised dealer banks will also get full hedging cost cover till Sept. 30 for fresh three-five year foreign currency non-resident (Bank) deposits. RBI also proposed to restore the time for realisation of export proceeds to nine months. 

 

Reported by Vaishali Tyagi

Edited by Akul Nishant Akhoury

 

 

FX RESERVES TAD UP TO $682.3 BLN AS OF MAY 29 FROM $681.38 MAY 22

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India's foreign exchange reserves were $682.3 billion as of May 29, the Reserve Bank of India Governor Sanjay Malhotra said Friday. This was marginally up from $681.38 billion as of May 22. 

 

The latest reserves are adequate to cover 11 months of imports and 89.1% of external debt, Malhotra said. While India's external sector, "successfully navigated the challenges of elevated tariff and trade-related uncertainties in 2025-26 (Apr-Mar) amidst a turbulent global economic environment," the cental bank governor 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."

 

On the external financing front, strong gross foreign direct investment and higher net foreign direct investment in FY26 highlight continued global investor interest in India, Malhotra said. FDI inflows also remained encouraging in April. FPI flows into India, however, saw net outflows of $13.7 billion so far in FY27, mainly from the equity segment. 

 

Reported by Vaishali Tyagi

Edited by Deepshikha Bhardwaj

 

 

TOP 10 ANNOUNCEMENTS BY GOVERNOR MALHOTRA AFTER MPC MEET

========================================================

Following are the top 10 announcements by Reserve Bank of India Governor Sanjay Malhotra Friday in his address at the conclusion of the Monetary Policy Committee's second bi-monthly meeting for 2026-27 (Apr-Mar):

 

INTEREST RATES

The Reserve Bank of India's Monetary Policy Committee left the policy repo rate unchanged at 5.25% in a unanimous decision. The standing deposit facility rate and marginal standing facility rate remains unchanged at 5.00% and 5.50%, respectively.

 

POLICY STANCE

The Reserve Bank of India's Monetary Policy Committee decided to continue with its "neutral" policy stance.

 

GROWTH

The Reserve Bank of India projected GDP growth for FY27 at 6.6% from 6.9?rlier, with the June quarter growth at 6.6%, down from 6.8?rlier. The central bank projected GDP growth for the September quarter at 6.3%, down from 6.7?rlier. GDP growth for the December quarter is seen at 6.5% and for the March quarter at 6.8%, respectively, against 7% and 7.2?rlier.

 

Prolonged global supply chain disruptions, heightened volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook.

 

INFLATION

The Reserve Bank of India projected its headline inflation for FY27 at 5.1%, up from 4.6?rlier. The inflation projection for the June quarter was raised to 4.2% from 4.0%. The central bank projected headline inflation for the September quarter at 5.1%, up from 4.4?rlier. The headline inflation for the December and the March quarter of the current financial year is seen at 5.9% and 5.4%, respectively, against 5.2% and 4.7?rlier.

 

The increase in retail fuel prices in May implies a direct impact of about 36 basis points on headline inflation, and would be reflected in CPI inflation in the coming months. Pass-through of higher global energy prices is also visible in several other inputs such as commercial liquefied petroleum gas, industrial raw materials, chemicals, rubber, and plastic products. The second-round impact of higher input costs could exert upside pressure on CPI inflation going forward. The outlook for inflation remains clouded due to the subnormal south-west monsoon forecast and El Nino risks.

 

FOREIGN FLOWS

The central bank expanded the fully accessible route universe and added all new issuances of 15-, 30-, and 40-year government securities. The government also removed withholding tax of 20% for foreign institutional investors to invest in government securities. These measures would help attract foreign capital for government borrowing.

 

FX MEASURES

The Reserve Bank of India announced foreign exchange swaps till Sept. 30 to incentivise external commercial borrowings by public-sector undertakings. It has provided full hedging cost till Sept. 30 to authorised dealer banks for raising fresh 3– to 5-year FCNR(B) deposits.

 

LIQUIDITY

System liquidity, as measured by the net position under the liquidity adjustment facility, stood at an average daily surplus of INR 2.63 trillion since the last meeting of the Monetary Policy Committee in April. Going ahead, the usual drawdown of government cash balances after the RBI's surplus transfer and the return of currency during the monsoon season will aid banking system liquidity in the near term.

 

Since the committee's last meeting, the weighted average call rate has moved within the policy corridor while short-term money market rates, especially on commercial paper and certificates of deposit, moderated before coming under pressure again in May. The central bank will ensure appropriate liquidity in the system to meet the productive requirements of the economy and facilitate monetary policy transmission.

 

EXTERNAL SECTOR

Various policy initiatives, including trade agreements with countries, are expected to strengthen India's balance of payments. Opening the insurance sector to 100% foreign direct investment, ethanol blending programme, push for energy transition, easing of FDI restrictions on countries sharing a land border with India, and liberalisation of the external commercial borrowing framework will also support the country's balance of payments.

 

EXCHANGE RATE

The Reserve Bank of India's exchange rate policy remains unchanged and continues to not target any specific level or band. The bank allows the exchange rate to be determined by market forces. Its objective is not to resist market-driven adjustments, but to curb excessive volatility and prevent disorderly market movements. The central bank remains vigilant and fully prepared to do whatever it takes to preserve orderly market conditions. Intervention in the foreign exchange market is aimed at smoothening excessive and disruptive volatility without targeting any specific level or band for the exchange rate.

 

FINANCIAL STABILITY

The system-level financial parameters related to capital adequacy, liquidity, asset quality, and profitability of scheduled commercial banks continue to remain healthy, although there is some moderation in profitability as compared to last year. Similarly, the system-level parameters of non-banking finance companies are sound, with adequate capital position and improved gross net-performing assets ratios. 

 

Compiled by J. Navya Sruthi

Filed by Rajeev Pai

 

 

EXCERPTS ON GROWTH FROM MPC'S STATEMENT

=======================================

Following are the excerpts on growth from the statement issued by the Reserve Bank of India Friday at the conclusion of the Monetary Policy Committee's second bi-monthly meeting for 2026-27 (Apr-Mar):

 

Real GDP growth for 2026-27 (Apr-Mar) is projected at 6.6%, with Apr-Jun at 6.6%; Jul-Sept at 6.3%; Oct-Dec 6.5%; and Jan-Mar at 6.8%. Prolonged global supply chain disruptions, heightened volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook.

 

As for growth, elevated energy prices coupled with global supply constraints are having adverse spillovers on economic activity. While domestic demand remains resilient and manufacturing and services sectors activity continue to expand, there are incipient signs of moderation in some sectors as suggested by high frequency indicators.

 

Compiled by J. Navya Sruthi

Filed by Akul Nishant Akhoury

 

 

EXCERPTS ON INFLATION FROM MPC'S STATEMENT

==========================================

Following are the excerpts on inflation from the statement issued by the Reserve Bank of India Friday at the conclusion of the Monetary Policy Committee's second bi-monthly meeting for 2026-27 (Apr-Mar):

 

Headline CPI inflation inched up to 3.4% in March and 3.5% in April, primarily due to higher food inflation. Fuel inflation remained modest as retail fuel prices largely remained unchanged in March and April despite the sharp spike in international energy prices. Core (CPI excluding food and fuel) inflation remained unchanged at 3.7% during Jan-Apr. Excluding precious metals, core inflation remained much lower at 2.1-2.2%. This indicates that the input cost pressures, as reflected in a sharp increase in April WPI, have not yet fully manifested in CPI.

 

Since May, however, retail fuel prices have been raised cumulatively by 7.4% for petrol and 8.4% for diesel. The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second order effects, would get reflected in CPI inflation in the coming months. Pass-through of higher global energy prices are also visible in several other inputs such as commercial LPG, industrial raw materials, chemicals, rubber and plastic products. The second-round impact of higher input costs could exert upside pressure on CPI inflation going forward.

 

Considering all these factors, CPI inflation for 2026-27 is projected at 5.1% in Apr-Jun at 4.2%, Jul-Sept at 5.1%; Oct-Dec at 5.9%; and Jan-Mar at 5.4%. Core inflation is projected at 4.7% for financial year 2026-27. Excluding precious metals, core inflation is projected to be lower, suggesting that demand pressures remain contained. These forecasts are subject to upside risks due to global supply chain disruptions and uncertainty about the spatial and temporal distribution of monsoon.

 

However, adequate stock of foodgrains and satisfactory reservoir levels provide some comfort. As the West Asia conflict prolongs without any meaningful resolution in sight, risks to both inflation and growth have increased. Energy markets have been volatile; crude oil reserves are declining and global commodity prices have firmed up. Faced with difficult trade-offs, monetary policy has turned more cautious. 

 

Compiled by Durgesh Nandan

Filed by Akul Nishant Akhoury 

End

 

US$1 = INR 94.95

 

Compiled by Mansi Patil and Shaheed Shaikh

Filed by Avishek Dutta

 

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