MPC To Hold Rates In June Meet

expected to remain data dependent, said economists.

They also expect the RBI to use non-policy measures to defend the rupee which has depreciated recklessly by Rs 5 per dollar (from Rs 90 to Rs 95) in just 152 days. The Rupee reached 96.83 against the US dollar on May 20, 2026.

Due to the ongoing US-Iran war, energy supply chain shocks, shipping delays and rising freight costs will have significant ramifications across supply chains, pushing up the cost of production and inflation expectations. However, even as economists see inflation risks tilted to upside, it would be well under the RBI’s target range.

Says Garima Kapoor, economist at Elara Capital, “At an average 4.8-4.9 per cent Consumer Price Index, we expect inflation to be within the RBI’s tolerance band. The RBI may look past the transitory shock, and unless inflation expectations dislodge materially, expect the RBI to be on hold in Calendar Year 2026.”

The six member MPC led by governor Sanjay Malhotra, will meet from June 3-5, 2026 with the final decision announced on June 5. The MPC has cut the policy repo rate by cumulative 125 basis points in 2025 and maintained a hold on rates in February and April meetings.

The Indian Meteorological agency IMD has projected a below normal monsoon for 2026, in midst of expectations of a strong El Niño occurrence. In addition, the US-Iran war has upended India’s pre-war
macro stability.

According to Kapoor, in the next 2-3 quarters, the new normal macro-fundamentals, assuming the US-Iran conflict concludes by end Q1FY27, are–Brent at $ 85-95/bl (pre-war $ 70/bl), rupee-dollar at
93-95 (pre-war 91), FY27 estimate GDP growth 6.5-6.7 per cent (pre-war 7 per cent), CPI inflation 4.7-4.9 per cent (pre-war 4.4 per cent), Centre’s fiscal deficit 4.5 per cent(pre-war 4.3 percent), current account deficit at 2 per cent of GDP (pre-war one per cent) and 10 year Gsec yield at 6.9 to 7.3 per cent (pre-war 6.7-7 per cent).

The RBI in its Annual Report 2026 released on Friday has pegged the domestic economy to be resilient and grow by 6.9 per cent for 2026-2027, against the backdrop of a moderate global growth while retail inflation at 4.6 per cent with risks tilted to the upside. In 2025-2026, India’s economy is estimated at 7.6 per cent against the backdrop of a steady global growth amidst multiple headwinds, up from 7.1 per cent in 2024-2025.

Economists also rule out a rate hike to defend the rupee which has been Asia’s worst performing currency as foreign investors dumped stocks worth $ 22.7 billion since the onset of the West Asia war. For FY27 YTD foreign investor outflow is at $10.6 billion.

Madhavi Arora, lead economist at Emkay Global Financial Services said, “We don’t think that the RBI will use rate hike lever for forex management and if indeed there comes a hike, it would be to manage or curtail domestic demand amid constrained resources, rather than to
manage forex. We are not pencilling in a June hike as of now.” Says SBI Research report,

“The RBI must use short term rates and nudging to manage the pressure on Rupee.” The RBI has been intervening in the forex market to defend the rupee which has led to a cumulative decline in FX reserves to the tune of $ 47 billion since the start of the US-Iran war on February 27, 2026 and
around ~$15 billion in the last 15 days. However, India still has sufficient FX reserves at around $680 billion.

Meanwhile the Bond markets are already indicating looming potential rate hikes. The benchmark 10-year government bond yield has moved higher in recent weeks and is now trading near 7.10 percent, up by 45 bps from 6.66 percent on February 27, before the war in West Asia.