RBI likely to hold rates steady amid global uncertainty
New Delhi, May 31
The Reserve Bank of India is widely expected to keep its benchmark policy rate unchanged at 5.25 per cent when the Monetary Policy Committee concludes its three-day meeting on June 5, as policymakers weigh mounting global uncertainties and their potential impact on inflation and economic growth.
Market participants and economists anticipate that the central bank will maintain its cautious stance, choosing to closely monitor evolving developments in West Asia and their implications for commodity prices, supply chains and financial markets before taking any policy action.
The six-member MPC, chaired by RBI Governor Sanjay Malhotra, will meet from June 3 to June 5 to review the monetary policy framework. The committee had also left rates unchanged at its previous meeting in April, citing uncertainties arising from geopolitical tensions and their possible effects on inflation and growth prospects.
While a status quo on interest rates is seen as the most likely outcome, some economists believe the central bank may revise its macroeconomic projections. Rising crude oil prices, persistent supply chain disruptions and pressure on the rupee due to external factors could prompt the RBI to raise its inflation forecast while trimming its GDP growth estimates for the current financial year.
A recent report by the State Bank of India's economic research department expects the central bank to maintain the existing policy rate amid a volatile global backdrop.
According to the report, inflation trends suggest that consumer price inflation could remain above 5 per cent for the next three quarters, even though inflation during the current quarter is expected to remain in the range of 4 to 4.1 per cent.
The report projects India's real GDP growth at around 7.2 per cent in the fourth quarter of FY26 and estimates overall economic growth for FY26 at 7.5 per cent. However, it cautioned that prolonged geopolitical uncertainties could alter the outlook and necessitate revisions to growth forecasts as fresh data becomes available.
For FY27, the SBI research team currently estimates GDP growth at 6.6 per cent, though it acknowledged that the forecast remains subject to change depending on developments in the global economic and geopolitical environment.
The report argued that the RBI should continue to adopt a data-driven approach while keeping rates unchanged for now. It noted that if inflationary pressures intensify, the central bank has alternative policy tools at its disposal, including measures such as Operation Twist, which can help manage market conditions without altering benchmark interest rates.
— IANS
Reader Comments
Status quo is good for now, but what about the common man? Home loan EMIs are already high and inflation is eating into our savings. The RBI should think about reducing rates to boost growth, not just protect against global risks. 7.5% GDP growth sounds nice but we all know the ground reality.
As an expat living in Bangalore, I see both sides. The RBI is being careful not to upset markets, but inflation is real. My rent went up 15% this year and food prices are crazy. Hope they at least adjust the inflation forecast to reflect reality, not some idealistic number.
Interesting how the SBI report mentions Operation Twist! That's a smart alternative to changing rates. The RBI has many tools in its kitty - maybe they should use more of these unconventional methods. But honestly, with West Asia on fire, no rate decision is going to be easy. Stay steady I say.
RBI is doing a balancing act between inflation and growth - not easy. But I'm a bit skeptical about these GDP forecasts. 7.5% growth with global uncertainties? Seems optimistic. They should be transparent about the risks rather than just projecting rosy numbers. Indian citizens deserve honest projections.
Makes sense to wait and watch. The US Fed is also on pause mode. Why should RBI rush? India's inflation is still within tolerance band. But I wish they would give more clarity on the rate cut timeline for FY27. As a small business owner, I need some visibility on borrowing costs.
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