RBI Holds Policy Rate at 5.25% for Second Consecutive Meeting as West Asia Crisis Looms

On June 5, 2026, the policy repo rate under the liquidity adjustment facility (LAF) remained maintained at 5.25% by unanimous vote of the Monetary Policy Committee (MPC). As a result, the rates for the Bank Rate, the Standing Deposit Facility (SDF), and the Marginal Standing Facility (MSF) all stay at 5.50%.

The MPC has likewise chosen to maintain its impartial position. The committee observed that the global situation has worsened since the last policy meeting, with the conflict persisting despite a fragile truce, according to Reserve Bank of India (RBI) Governor Sanjay Malhotra's statement. The policy's April estimates of slower GDP and higher inflation reflect the negative effects of the protracted disruption of supply chains and high energy prices.

Why RBI Decided Not to Change Policy Rate?

Despite global shock, CPI inflation stayed below the target since domestic prices were not as affected. According to the governor, baseline predictions indicate that headline inflation will start to firm up in the third quarter of 2026–27, and the effects of the supply shock will begin to fade in the fourth quarter and beyond. The underlying inflation pressures, he continued, are still rather moderate right now. But second-round effects on expectations and salaries could lead to inflation spreading across the economy, so we need to be on the lookout.

Regarding growth, the MPC pointed out that the combination of high energy costs and worldwide supply bottlenecks is negatively impacting economic activity. He went on to say that although demand at home is strong and business activity is growing, high-frequency indicators are pointing to a beginning of deceleration in certain areas. In light of the unknowns surrounding the conflict's length, severity, spillover effects, and the rate of supply chain reconstruction, he stated that the MPC believed that the baseline assessment of inflation and growth was fraught with significant risks.

Rupee Continues to Perform Low

Since the new year began, the rupee has been steadily losing value. On May 20, 2026, the rupee fell 33 paise from its previous close, reaching a record low of 96.86 versus the USD. The rupee, which was formerly thought of as one of the most stable currencies in Asia, has fallen to the bottom of the emerging market currency rankings this year.

A combination of factors, including rising oil prices, capital outflows, trade deficits, and the US dollar, is putting pressure on it. Its value has declined by around 6% since the Iran crisis began in late February, and it has lost around 7% of its value so far in 2026. In response to the MPC's proposal, the RBI lowered the repo rate by 25 basis points (bps) in February, April, and December 2025, and by 50 bps in June, all while retail inflation was falling.