RBI policy meeting
At present, the situation of energy crisis is prevailing in the world. In such a situation, the Reserve Bank of India (RBI) faces a big challenge to keep the economy stable. It is going to be a big test for the RBI Governor because the crisis arising out of global tension is not directly under the control of the government or RBI. If the war between Trump and Iran continues, the situation may become more serious. There is also a possibility of increase in the prices of petrol, diesel and gas cylinders. In such an environment, what decision the RBI takes in the monetary policy meeting to be held between June 3 and 5, it will have a direct impact on the EMIs of the common people.
According to a survey conducted by ET, 11 out of 15 economists believe that there will be no change in the repo rate in the Monetary Policy Committee (MPC) meeting to be held on June 3-5. Whereas four economists have estimated an increase of 25 basis points i.e. 0.25%. Most experts believe that RBI can keep the policy rate unchanged in the June meeting. The reason for this is geopolitical tension and predictions of bad weather, which may affect economic growth and increase inflation. However, there is a possibility of increase in interest rates in future.
Rates may increase throughout the year
Out of these 15, 13 economists have expected the rates to increase by a total of 50-75 basis points in the entire financial year. The remaining two believe that RBI will not make any changes in interest rates throughout the year. In the April meeting, MPC had maintained the repo rate at 5.25%. The June meeting is taking place at a time when fuel prices are rising and the rupee has weakened rapidly due to the US-Iran war. There is also a danger of El Nino conditions, which may affect the monsoon. This may affect food production and food prices.
Economists who are in favor of not changing the rates believe that the current inflationary pressure is mainly related to supply. Therefore, higher interest rates will not have much impact on it. He says that at such a time, making borrowing expensive will not make much difference to inflation, but economic growth may definitely slow down.
focus on inflation
Gaura Sen Gupta, Chief Economist of IDFC First Bank, said that due to the ongoing war in West Asia, there has been a big shock on the supply side. According to him, monetary policy is not the most effective way to deal with this situation as it mainly affects demand. In such a situation, increasing the rates may further weaken the demand. However, economists who expect rates to rise say that the main focus of monetary policy should be to keep inflation expectations under control. After the increase in petrol prices, inflation is expected to be between 5% to 5.5% in FY27. There is also a possibility of further increase in fuel prices. In such a situation, RBI should consider taking action now instead of waiting for the future.
Anubhuti Sahay, head of India Economic Research at Standard Chartered Bank, also expects an increase of 25 basis points. He estimates that RBI may increase the inflation estimate for FY27 to 4.9%. He says that a sharp fall in the rupee may increase additional pressure on inflation, which further strengthens the need to increase rates. RBI had estimated in April that the average inflation in FY27 would be 4.6% and the economy would grow at the rate of 6.9%. Some economists are hopeful that the RBI may announce steps that will help ease the problem of foreign capital outflows that is putting pressure on the rupee.
How much can the increase be?
Institutions like MUFG, Canara Bank and Nomura expect the Liberalized Remittance Scheme (LRS) limits to be tightened and additional restrictions related to forward hedging to be imposed. State Bank of India (SBI) said in a note that the increasing pressure on the rupee reflects the need for continued policy support in a period of global uncertainty. The rupee had weakened by about 11% in FY26 and has fallen by more than 3% so far in FY27.
At the same time, Barclays’ Chief India Economist Aastha Gudwani said in her report that RBI had started cutting interest rates from February 2025 and the repo rate was reduced by a total of 125 basis points to 5.25%. MPC continues to maintain status quo after the last cut in December 2025. He believes that even though CPI inflation remains above the RBI’s 4% target, the MPC can consider it a supply shock and continue with its “neutral pause” i.e. wait and watch policy for the time being.
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