RBI Maintains Repo Rate At 5.25%, Sees Higher Inflation In FY27

The rupee jumped 50 paise against the US dollar on Friday after the Reserve Bank of India kept its benchmark repo rate unchanged at 5.25% and unveiled measures aimed at attracting more foreign investment into government securities.

The domestic currency touched an intraday high of 95.24 against the dollar after opening at 95.72. A day earlier, it had settled at 95.74. Traders said sentiment improved after the RBI signaled confidence in the country's foreign exchange position and announced steps to make investments in government bonds more attractive for overseas investors.

Why Has The RBI Chosen To Wait?

While the policy decision itself was widely expected, the tone of the central bank's commentary reflected growing concern over global developments.

RBI Governor Sanjay Malhotra pointed to the conflict in West Asia, rising energy prices and disruptions in global supply chains as factors that could influence India's economic outlook in the months ahead.

Those risks prompted the central bank to trim its FY27 GDP growth estimate to 6.6% from 6.9%. At the same time, it raised its inflation forecast to 5.1%, citing higher input costs across several sectors, including LPG, metals, plastics and rubber.

Are Risks Rising?

Despite the downgrade, the RBI said domestic demand remains resilient. Private consumption and services exports continue to support economic activity, helping India absorb some of the pressure coming from overseas markets.

Malhotra said the economy had so far withstood the spillover effects of global conflicts, though signs of cost pressure were beginning to emerge.

The RBI expects inflation to average 4.2% in the first quarter of FY27 before moving higher through the year. By the second half, it sees inflation approaching the upper end of its tolerance band.

Also Read - Market Midday, 5 June 2026: Sensex, Nifty Gain As RBI Holds Repo Rate At 5.25%, Keeps Neutral Stance

Focus Shifts To Capital Flows

Apart from the rate decision, the RBI's measures on foreign investment drew attention in financial markets.

The central bank relaxed norms for foreign portfolio investors buying government securities. Officials believe the move could help support capital inflows at a time when global investors remain cautious.

Malhotra also said India's foreign exchange reserves remain adequate at $682 billion to deal with external shocks, even as volatility persists across global currency markets.

Sources:

The Times of India

Deccan Herald