The Reserve Bank of India is expected to leave the key policy rate unchanged at 5.25% in its second meeting since the Iran-US war began,according to the buzz on the street. Experts believe, the RBI in its June meeting is expected to adopt a cautious stance, factoring in the possible headwinds to inflation and growth amid the West Asia turmoil.
In its previous April meeting, when tensions between Iran and the US had just started escalating, the central bank adopted a cautious wait-and-watch approach and kept the repo rate unchanged at 5.25% and continues with ‘Neutral’ stance.
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However, more than two months into the conflict, surging energy prices, persistent supply chain disruptions and a depreciating rupee have led some experts to believe that the RBI may raise its inflation forecast and lower its GDP growth estimate at its bi-monthly monetary policy meeting.
RBI may pause now, but 75-100 bps hikes possible later: DBS
Radhika Rao, Senior Economist and Executive Director at DBS Bank, says , “We expect the guidance to be cautious, with a pause on rates at the forthcoming meeting,” as inflation remains under control for now.
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“Fuel prices have been raised, but the cumulative increase of around 7% is measured. In the absence of significant spillovers into core inflation and with inflation expectations still broadly anchored, the central bank might reason that second-round effects are not evident at this stage, supporting a wait-and-watch approach,” Rao noted.
However, she said the case for tighter monetary policy has strengthened for subsequent policy meetings amid rising global interest rates, fuel price hikes, food inflation risks and pressure on the rupee.
“If inflation exceeds 5% in FY27, the current repo rate of 5.25% may be too low, potentially paving the way for 75-100 basis points of rate hikes in the second half of CY26,” Rao said.
West Asia risks, weak monsoon cloud outlook: ICRA
Aditi Nayar, Chief Economist at ICRA, expects the “MPC to remain cautious and maintain rates and stance as unchanged”, citing the India Meteorological Department’s (IMD) sombre outlook on the monsoon and El Nino, along with continuing uncertainty over the durability of the ceasefire in West Asia.
According to the IMD, southwest monsoon rainfall over India during the June-September season is expected to be below normal. The weather agency has projected rainfall at 90% of the long-period average, with a model error margin of 4%.
RBI MPC meeting begins June 3
The RBI Monetary Policy (MPC) meet will start from June 3. After three days of deliberations, the six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, will announce its decision on June 5.
The meeting is coming against the backdrop of weakening rupee that has depreciated about 3.2% since April and around 6% so far in calendar year 2026. India’s CPI or retail inflation rose slightly to 3.48% in April, mainly due to higher prices of gold and silver jewellery as well as some kitchen items. However WPI Infltion spikes to 2026 highs at 8.3% in April.
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