MUMBAI: While a majority of forecasters and market participants expect the Reserve Bank of India’s Monetary Policy Committee (MPC) meeting to vote on the status quo on interest rates, the upcoming June 5 MPC statement will be closely watched.With the period of unrest caused by the conflict in West Asia approaching 100 days, this is no longer a short-term disruption that the central bank can see through. He will now have to take into account the impact of the crisis on his growth and inflation forecasts.Second, with the rupee depreciating by more than 6% in 2026 – its worst performance in a decade – there are expectations that the central bank may use policy to manage the exchange rate.
Finally, the market is watching to see if the Reserve Bank of India will follow through on the governor’s statement that the rupee is undervalued.“We do not expect any change in the repo rate or position this time. However, the tone will be cautious, tending towards militancy. We can expect the RBI to increase its inflation forecast to around 5% and lower its GDP forecast to around 6.5% from 6.9%. We may not expect any such specific action on foreign exchange, although there will be an explanation of the developments,” Madan Sabnavis, chief economist at Bank of Baroda, said:
The SBI Economic Research Department has also revised its inflation forecast for the full FY27 to 5-5.1%, with risks tilted to the upside. Imported inflation in May is expected to jump to 7.3%. “Full-year FY27 GDP growth is now expected at 6.6%, subject to revisions due to persistent geopolitical uncertainties.” The report said.Making matters worse for inflation is the forecast that the southwest monsoon will be weak at about 90% of the long-period average.
It is also likely to be delayed.Regarding the rupee, the SBI report notes that the RBI must deploy its foreign exchange reserves of about $680 billion in a measured manner, combining timely and sudden interventions to check excessive volatility. Alongside this, the report calls for a comprehensive balance of payments package that includes capital controls, liquidity management and policy payments.