The Reserve Bank of India kept interest rates unchanged at 5.25% for the second time in a row amid three-month long Middle East conflict that has disrupted energy supplies leading to a surge in crude oil prices, and creating inflationary pressures. While announcing the second bi-monthly MPC decision for FY27, RBI unanimously decided to maintain neutral stance and raised the forecast of FY27 inflation outlook and cut the GDP forecast.
Here are key highlights from the RBI June Monetary policy committe meeting
FY27 inflation forecast raised to 5.1%
RBI raised its FY27 consumer price inflation (CPI) forecast to 5.1% from 4.6% projected earlier 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.
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“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.
RBI has also raised their assumption for average crude oil prices to $95 per barrel from $85 per barrel estimated earlier.
FY27 growth forecast cut to 6.6%
The RBI projected India’s real GDP growth at 6.6% for FY27, lowered from 6.9% growth projected earlier. RBI noted that, “Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity.”
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The economy is expected to grow 6.6% in Q1FY27, 6.3% in Q2FY27, 6.5% in Q3FY27 and 6.8% in Q4FY27.
The central bank, however, said domestic demand remains resilient and economic activity has largely stayed steady despite the global shock.
“India’s domestic economic activity remained largely steady since the outbreak of the conflict,” the Governor said.
The RBI added that manufacturing and services activity continue to expand, although some sectors are showing early signs of moderation.
RBI to act against excessive forex market volatility
The rupee has become one of the worst-performing emerging market currencies this year, pressured by a mix of expensive oil, capital outflows, widening trade deficits and a surging US dollar. The rupee touched a record low of 96.86 against the dollar on May 20.
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.
Liquidity remains comfortable
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.
“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 nearterm,” RBI said.
Forex reserves remain robust, CAD may widen
On the external sector front, the RBI said India’s foreign exchange reserves stood at a healthy $682.3 billion as of May 29, providing an import cover of about 11 months.
However, higher energy prices and trade uncertainties could widen the current account deficit in FY27.
The Governor said services exports and inward remittances are expected to provide support to the external sector.
TOPICSRBIRBI Monetary Policy ReviewReserve Bank of IndiaThis article was first uploaded on June five, twenty twenty-six, at twenty-one minutes past twelve in the night. © IE Online Media Services (P) Ltd