Why in the news
The RBI’s Monetary Policy Committee left rates unchanged in June 2026, citing a weaker global backdrop and uncertain monsoon prospects, while lowering its growth forecast and lifting its inflation forecast.
Key facts
- Policy repo rate: unchanged at 5.25% under the Liquidity Adjustment Facility; decision was unanimous.
- Stance: neutral, meaning no commitment to tighten or ease.
- Core CPI for FY27 is projected at 4.7%.
- Inflation should climb to the upper tolerance limit during the third quarter of 2026-27, before the supply shock eases from Q4.
- Indian basket crude averaged about USD 110 per barrel in April-May 2026, well above the April policy assumption.
Rates at a glance
| Rate | Level |
|---|
| Repo | 5.25% |
| Standing Deposit Facility | 5.00% |
| Marginal Standing Facility | 5.50% |
| Bank Rate | 5.50% |
FY27 projections
| Quarter | GDP growth | CPI inflation |
|---|
| Q1 | 6.6% | 4.2% |
| Q2 | 6.3% | 5.1% |
| Q3 | 6.5% | 5.9% |
| Q4 | 6.8% | 5.4% |
| Full year | 6.6% (earlier 6.9%) | 5.1% (earlier 4.6%) |
Concerns
- Risks: West Asia conflict, supply-chain disruptions, a sub-normal south-west monsoon forecast, El Nino, and second-round effects on wages and inflation expectations.
- Cushions: diversifying crops, harvesting and saving water, climate-resilient farming and short-duration crops.
- Reasoning: inflation risks have grown, yet it seemed prudent to wait for clarity; decisions remain data-dependent.
Key terms
- SDF: a collateral-free window where banks deposit spare funds with the RBI, priced a little under repo.
- MSF: overnight emergency borrowing from the RBI, at a rate slightly above repo.
- Tolerance band: target of 4% with plus or minus 2 percentage points, so 2% to 6%.
- Core CPI: inflation excluding food and fuel.
- El Nino: periodic warming of the eastern Pacific, often tied to weak monsoons.
Exam angle
- Repo 5.25%, SDF 5.00%, MSF and Bank Rate 5.50%.
- Inflation target: 4% (+/- 2).
- LAF toolkit: repo, reverse repo, SDF and MSF.