Good morning and Namaskar. Over the past few months, the global economy has been shaped by heightened uncertainty, disruptions to key trade routes and supply chains, increased market volatility, and cautious business sentiment. 2. Let me at the outset emphasise that the Indian economy entered this episode of global turbulence with much better fundamentals than in previous similar episodes. While we remain confident to withstand these shocks with minimum pain, it is important to not only confront and address these challenges but also take them as an opportunity to further enhance resilience. 3. Global economic outlook remains clouded by the continuing geopolitical impasse in West Asia, as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity. Faced with difficult trade-offs, monetary policy has turned more cautious. Major advanced economy central banks are likely to pivot towards monetary policy tightening. While equity markets remain buoyant driven by AI-fuelled optimism, global bond markets remain bearish amidst renewed inflation fears and continuing debt sustainability concerns. Risk-off sentiments and safe haven demand are imparting volatility to forex markets, with a depreciating trend in many EME currencies. Decisions of the Monetary Policy Committee (MPC) 4. The Monetary Policy Committee (MPC) met on the 3rd, 4th and 5th of June to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25 per cent; consequently, the standing deposit facility (SDF) rate remains at 5.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.50 per cent. The MPC also decided to continue with the neutral stance. 5. I shall now briefly set out the rationale for these decisions. 6. The committee noted that the global environment has deteriorated since the last policy meeting with the conflict lingering amidst a fragile truce. The adverse implications of the extended disruption in supply chains and elevated energy prices are reflected in the moderation of growth and increase in inflation projections from the April policy. 7. CPI inflation remains below the target despite global shock as the passthrough to domestic prices has been limited. While the baseline projections point towards headline inflation firming up towards the upper tolerance level in Q3:2026-27, the impact of the supply shock is expected to wane Q4 onwards. The underlying inflation pressures continue to remain benign at this juncture. However, generalisation of inflation through second-round effects on expectations and wages is a distinct possibility, warranting a close vigil. The outlook also remains clouded due to the sub-normal south-west monsoon forecast and El Niño risks. 8. As for growth, the MPC noted that 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. 9. The MPC was of the opinion that 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. Additionally, the food outlook remains uncertain on account of the sub-normal south-west monsoon forecast and El Niño. 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. 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 MPC also decided to retain the neutral stance. Assessment of Growth and Inflation Growth 10. The Second Advance Estimates released by the National Statistical Office (NSO) placed India’s real GDP growth at 7.6 per cent in 2025-26, owing to strong expansion in private consumption and fixed investment.1 Robust performance of manufacturing and services sectors were the growth drivers from the supply side. 11. As per several high frequency indicators, domestic economic activity remained largely steady since the outbreak of the conflict.2 India’s manufacturing and services PMI suggest that both sectors continue to be resilient, and business expectations are still positive.3 On the demand side, private consumption, aided by discretionary spending, has remained resilient so far.4 Fixed investment has also maintained its momentum despite cost pressures.5 Merchandise exports recorded strong growth in April 2026, notwithstanding elevated freight and insurance costs. Services exports are also holding up well, reflecting sustained demand despite concerns about AI. Overall, the economic situation has broadly exhibited resilience and withstood the conflict spillovers, although the impact of cost pressures is becoming visible. 12. Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity. While import diversification in affected commodities is likely to improve supply, it would come at a higher cost. 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. The pass-through of higher energy prices to retail products is already evident. Additionally, the projected deficiency in the south-west monsoon will have implications for agricultural production and rural demand. However, the programmes and initiatives for crop diversification, water harvesting and conservation, climate-resilient practices and short-duration crops, among others, are expected to mitigate the impact. 13. Sustained momentum in services, continuing impact of GST rationalisation, and broadly stable employment conditions6 should continue to support urban consumption,7 even though rising inflation could be a drag on the purchasing power of households. Government capex is expected to remain robust.8 While the elevated capacity utilisation9 and sustained credit flows from bank10 and non-bank sources are supportive of corporate investment, cost escalation and heightened uncertainty could dampen investor sentiment. Weak global demand and high logistics costs are headwinds for merchandise exports. Services exports11, on the other hand, are expected to sustain their momentum as demand for Indian services remains healthy. 14. Several measures undertaken by the Government, including support to MSME and export sectors, efforts to ramp up domestic gas and crude production, encouraging use of domestically produced alternatives to imported inputs, and diversification of critical imports should help cope up with the external shocks. 15. Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 6.6 per cent, with Q1 at 6.6 per cent; Q2 at 6.3 per cent; Q3 at 6.5 per cent; and Q4 at 6.8 per cent. Prolonged global supply chain disruptions, volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook. Inflation 16. Although firming up marginally from 3.2 per cent in February, headline CPI inflation was below the target during March and April 2026 (3.4 per cent and 3.5 per cent, respectively). While food inflation edged up12, fuel inflation remained muted as retail prices of petrol and diesel were unchanged in March and April.13 Core14 inflation remained stable at 3.7 per cent during March-April. Excluding precious metals, core inflation was much lower at 2.1-2.2 per cent during the same period. International crude oil prices (Indian basket) have averaged around US$110/barrel during April-May 202615 and indications are that average oil prices for 2026-27 would be substantially higher than what were assumed during the last policy statement. Higher energy prices and an increase in several input prices also led to a sharp spike in WPI inflation in April 2026.16 17. Turning to the inflation outlook, the partial pass-through of high global crude oil prices to domestic pump prices of petrol and diesel started since May.17 Prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others, have increased.18 These could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs. 18. Considering all these factors, CPI inflation for 2026-27 is projected to be at 5.1 per cent with Q1 at 4.2 per cent; Q2 at 5.1 per cent; Q3 at 5.9 per cent; and Q4 at 5.4 per cent. Core inflation is projected at 4.7 per cent for 2026-27. These forecasts are subject to upside risks due to global supply chain disruptions19, global commodity price shocks20, uncertainty about the spatial and temporal distribution of the south-west monsoon21 and El Niño22 conditions. Adequate stock of foodgrains23 and satisfactory reservoir levels, however, provide some comfort. Liquidity and Financial Market Conditions 19. System liquidity, as measured by the net position under the LAF, stood at an average daily surplus of ₹2.63 lakh crore since the last MPC meeting in April 2026.24 The Reserve Bank proactively undertook durable25 and transient liquidity measures26 to ensure appropriate liquidity in the banking system. 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. 20. Since the April meeting, the weighted average call rate traded within the policy corridor, while short-term money market rates, especially rates of commercial papers and certificates of deposit moderated before coming under pressure again in May.27 G-Sec yields eased in April following the ceasefire announcement in West Asia but firmed up in May. Transmission in the credit market has moderated during March-April with some hardening in deposit and lending rates.28 21. The Reserve Bank would ensure appropriate liquidity in the banking system to meet the productive requirements of the economy and facilitate monetary policy transmission. 22. As per the latest available data, credit from all sources grew by 15.4 per cent (y-o-y) in 2025-26 as compared to 12.1 per cent a year ago. Bank credit growth continued to remain robust29 and broad-based30 as market-based funding became costlier. Financial Stability 23. The system-level financial parameters related to capital adequacy, liquidity, asset quality and profitability of Scheduled Commercial Banks (SCBs) continue to remain healthy, although there is some moderation in profitability as compared to last year.31 Similarly, the system-level parameters of NBFCs too are sound, with adequate capital position and improved GNPA ratios32. External Sector 24. I will now speak about the external sector. It successfully navigated the challenges of elevated tariff and trade related uncertainties in 2025-26 amidst a turbulent global economic environment. 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. 25. On the external financing front, buoyant gross foreign direct investment (FDI) and higher net FDI in 2025-2633 underscore the continued interest of global investors in India. The FDI flows have also been encouraging in April 2026. During 2026-27 so far (till June 2), net FPI to India, however, witnessed outflows of US$ 13.7 billion, primarily in the equity segment.34 26. As on May 29, 2026, India’s foreign exchange reserves stood at a healthy US$ 682.3 billion, adequate in terms of the standard metrics of reserve adequacy including import cover (about 11 months) and external debt (89.1 per cent). Various policy initiatives are expected to strengthen our balance of payments. These include the recent agreements with major trading partners35, opening the insurance sector to 100 per cent FDI, ethanol blending program, push for energy transition, easing of FDI restrictions for land-bordering countries, liberalisation of the ECB framework, and several others. 27. To attract foreign capital, I also have a few measures to announce today. -
First, for government securities under the Fully Accessible Route (FAR), we are expanding the universe of ‘specified securities’ by including all new issuances of 15-, 30- and 40-year tenor G-secs. In addition, limits pertaining to short-term investment, concentration and individual securities on FPI investment under the General Route are being removed. These measures along with the tax benefits provided by the government this morning should help attract foreign capital for government borrowing. -
Second, the limits for investment by NRIs and OCIs in equity instruments traded on the stock market without SEBI registration are being increased. Further, the same facility is being extended to all individual Persons Resident Outside India (PROIs) at par with NRIs and OCIs. -
Third, a facility of concessional forex swap will be provided till 30th September 2026 to incentivize ECBs by PSUs. -
Fourth, a similar facility for bearing the full hedging cost shall be provided till 30th September 2026 to AD banks for raising fresh 3–5-year FCNR (B) deposits. -
Fifth, it is proposed to restore the time for realisation of export proceeds to nine months. 28. 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. 29. As I have often reiterated, our exchange rate policy remains unchanged. We do not target any specific level or band; instead, we allow the exchange rate to be determined by market forces. Our experience, however, suggests that it may sometimes witness movements, often caused by speculative pressures, especially in the wake of heightened uncertainty, that are not in sync with fundamentals and are disruptive of economic activity. While our objective is not to resist market-driven adjustments, we will curb excessive volatility and prevent disorderly market movements. While our foreign exchange reserves provide a strong buffer against external shocks, we have a broad range of regulatory and market-based instruments to respond effectively as may be required. In this regard, we remain vigilant and are fully prepared to do whatever it takes to preserve orderly market conditions. Concluding Remarks 30. To conclude, global economic conditions and sentiments continued to be frayed without any meaningful resolution of the West Asia conflict. While these have 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. 31. Thank you. Namaskar and Jai Hind. (Brij Raj)
Chief General Manager Press Release: 2026-2027/386
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