It also said that the risks of higher inflation have amplified. The committee also decided to maintain the neutral policy stance.
“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,” governor Sanjay Malhotra said in his post policy statement.
The central bank also sharply revised its consumer price inflation forecast higher citing higher global crude oil prices and its knock-on effects on fuel, industrial inputs and raw materials. The RBI now expects consumer inflation to print at 5.1% in the fiscal year ended March 2027 up from 4.6% forecast earlier. The central bank also increased inflation forecasts between 20 to 70 basis points in each quarter of the current fiscal year. One basis point is 0.01 percentage point.
Growth forecast for the current fiscal year was also revised downwards to 6.6% from 6.9% earlier with forecast for each quarter revised downwards by 20 to 40 basis points.
“Prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others, have increased. These could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs,” Malhotra said. The inflation forecast is subject to upside risks due to global supply chain disruptions, global commodity price shocks, uncertainty about the spatial and temporal distribution of the south-west monsoon and El Niño conditions, he said.
The RBI decision was in line with market expectations. Eleven of the 15 economists polled by ET expected a pause in the repo rate by RBI in its monetary policy announcement. The RBI last reduced its benchmark repo rate by 25 basis points to 5.25% in December 2025.Both the currency and the benchmark yield improved after the announcement of measures to attract foreign investment flows. The rupee, which opened at 95.71 on Friday, strengthened to 95.54. It had closed at 95.78 the previous day. The 10 year benchmark yield softened five basis points to 6.96%, from its previous close of 7.01%.
The benchmark Nifty 50 was up 0.18% at 23,459.4, while the BSE Sensex gained 0.2% to 74,514.76.
Separately, Malhotra also announced measures to attract foreign capital which the he said will help to strengthen India’s balance of payments and support the rupee which has been under pressure.
The RBI expanded the universe of specified securities under the Fully Accessible Route (FAR), 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 exemption on capital gain tax provided by the government should help attract foreign capital for government borrowing, Malhotra said.
The RBI will also increase limits for investment by NRIs and overseas citizens of India in equity instruments traded on the stock market without SEBI registration.
The central bank will also provide a facility of concessional forex swap for public sector undertakings till September 30 to incentivize external commercial borrowings by these entities.
A separate facility for bearing the full hedging cost will also be provided for authorised banks for raising three to five year FCNR (B) deposits September 30. The central bank also said that it will restore the time for realisation of export proceeds to nine months.