02/06/26, RBI's Monetary Policy Committee

The Reserve Bank of India's bi-monthly Monetary Policy Committee (MPC) meeting will begin on June 3. The three-day meeting will conclude on June 5, with RBI Governor Sanjay Malhotra announcing the key policy decisions. Analysts expect the RBI to pause rather than a hike despite rising inflation risks from higher fuel prices, a depreciation rupee and elevated global energy costs. Here’s why.

RBI unlikely to hike rates to defend the rupee

Nomura expects the RBI to opt for a hawkish pause, arguing that interest rates are not an effective tool to defend the currency; also their primary mandate is to control inflation and support economic growth, rather than target a specific exchange rate.

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RBI MPC to hit pause? War abroad, El Nino at home point to a cautious stance

“Despite pressure to raise policy rates to defend FX and/or pre-emptively ward off inflation risks, we expect the RBI’s MPC to vote unanimously to keep the repo rate on hold at 5.25% on June 5,” Nomura said.

Inflation is not yet a problem: Nomura

The brokerage noted that inflation risks are increasing, but not to an extent that would warrant an immediate rate hike.

Wholesale inflation (WPI) surged to 8.3% in April. However, core inflation remains subdued, indicating that companies have not fully passed on higher input costs to consumers. Fuel price hikes in petrol, diesel and CNG are also expected to add around 0.5 percentage points to headline inflation. The economy is also bracing for El Nino.

Given these factors, Nomura believes “the MPC can be patient”, and assesses how inflationary pressures evolve before taking any action.

The brokerage expects the RBI to raise its FY27 inflation forecast to 4.9% from 4.6%. At the same time, it sees the central bank lowering its FY27 GDP growth projection to 6.8% from 6.9% due to the impact of higher energy costs on economic activity.

Nomura also said there is a possibility that the RBI shifts its liquidity stance from “adequate” to a more “neutral” position as price pressures build up.

RBI to maintain long pause: HSBC MF

HSBC MF also expects the RBI to maintain a prolonged pause in policy rates despite rising external risks.

“The RBI MPC is likely to maintain a long pause in policy rates while keeping the liquidity conditions in sufficient surplus,” HSBC said.

However, it warned that the risk of rate hikes in 2027 could increase if elevated oil prices persist and weather-related risks (EL Nino) begin to feed into inflation.
Crude oil prices, shipping costs and freight rates have surged since the Iran-US war escalated in February. Brent crude is currently hovering around $94.03 but it briefly touched $126 per barrel.HSBC highlighted that most major central banks chose to remain cautious amid the uncertainty. The US Federal Reserve, the Bank of England and the European Central Bank maintained a hawkish tone in their policy comments while refraining from major policy shifts.

The RBI also adopted a cautious approach in its April monetary policy review. HSBC MF said it viewed the central bank’s decision as a “neutral hold”, with policymakers closely monitoring incoming data before taking further action.

Source: FinancialExpress