The Reserve Bank of India's Monetary Policy Committee (MPC) is widely expected to maintain a status quo on interest rates in its upcoming meeting on June 5. However, market participants will closely scrutinize the MPC statement for any shifts in tone, given the prolonged disruptions from the West Asia conflict, which are now approaching 100 days. This is no longer a short-term disturbance that the central bank can overlook, and it will need to factor the crisis into its growth and inflation forecasts.
Second, the rupee has depreciated over 6% in 2026, its worst performance in a decade, leading to expectations that the RBI may use policy tools to manage the exchange rate. Finally, the market is watching whether the RBI will follow up on the governor's statement that the rupee is undervalued.
"We do not expect any change in the repo rate or stance this time. However, the tone will be cautious, leaning towards being hawkish. We can expect RBI to increase its inflation forecast towards 5% and lower that for GDP to around 6.5% from 6.9%. We may not expect any specific measure on foreign exchange, though there will be an explanation given on developments," said Madan Sabnavis, chief economist at Bank of Baroda.
SBI's economic research department has also revised its full-year FY27 inflation projection to 5-5.1%, with risks tilted to the upside. May's imported inflation is projected to jump to 7.3%. "The full-year FY27 GDP growth rate is now cast at 6.6%, subject to revisions due to ongoing geopolitical uncertainties," the report said.
Adding to inflationary pressures, the forecast for the southwest monsoon indicates a weak season at around 90% of the long-period average, with a likely delay.
On the rupee, the SBI report suggests that the RBI should deploy its foreign exchange reserves of around $680 billion in a calibrated manner, combining timely and surprise interventions to check excessive volatility. Alongside this, it calls for a comprehensive balance of payments package incorporating capital controls, liquidity management, and policy nudges.
