MUMBAI, June 3: The high-powered Monetary Policy Committee, headed by RBI Governor Sanjay Malhotra, on Wednesday started its three-day brainstorming amid expectations that the central bank may leave the key policy rate unchanged at 5.25 per cent as the West Asia conflict poses challenges to inflation as well as economic growth.
After three days of deliberations, the six-member Monetary Policy Committee (MPC) will announce the decision on June 5.
With surging energy prices, continuing supply chain woes and a depreciating rupee, primarily driven by external challenges, some experts are of the view that the Reserve Bank of India (RBI) may raise its inflation forecast and lower its GDP growth estimate.
In April, the Reserve Bank had kept its key policy rate unchanged, adopting a cautious wait-and-watch stance as policymakers assessed the fallout from the West Asia conflict on energy supplies, inflation and growth.
A report from private-sector lender Yes Bank said that policy challenges remain magnified, even as the war situation improves, yet remain unresolved, thereby keeping the economy open to supply shocks.
The pass-through from the WPI to retail inflation has just begun, in the form of increases in pump-head petrol and diesel prices, alongside increases in commercial LPG prices, it said.
Also, manufacturing and farm input costs have risen sharply, and manufacturers have indicated a willingness to pass the impact onto the retail side.
“While every policy remains live, we see a very small probability for a rate and stance change in June, as RBI buys time to assess the second-round impact of price rises,” Yes Bank’s report said.
Gaura Sen Gupta, Chief Economist at IDFC First Bank expects the RBI to stay on pause as inflation remains within the inflation-targeting band.
“Moreover, there is downside risk to growth due to the surge in input costs. RBI’s flexible inflation-targeting band provides it policy space to look through the first-round impact of the surge in fuel prices. Communication will be cautious, with RBI stating its willingness to act if there are second-round impacts on inflation,” Gupta added.
Abhishek Bisen, Head-Fixed Income, Kotak Mahindra AMC, said that the meeting comes amid heightened uncertainty due to global conflicts, rising crude prices, sharp rupee depreciation, and monsoon risks.
While CPI inflation remains benign at 3.48 per cent, surging WPI and fuel costs signal emerging pressures, he said, adding that growth remains strong but faces headwinds.
“Against this backdrop, while markets are pricing in potential rate hikes ahead, the RBI is likely to hold the repo rate at 5.25 per cent for now but adopt a more hawkish tone-raising inflation forecasts, slightly trimming growth projections, and relying on forex tools to manage currency volatility,” Bisen said.
The RBI factors in the consumer price index (CPI) when formulating its monetary policy.
The government has set the consumer price index (CPI) based headline inflation target at 4 per cent with the upper tolerance level of 6 per cent and the lower tolerance level of 2 per cent for the central bank.
The CPI or retail inflation rose slightly to 3.48 per cent in April, mainly due to higher prices of gold and silver jewellery as well as some kitchen items.
HSBC Chief India Economist Pranjul Bhandari believes it would be a close call for the RBI, but the repo rate may be left unchanged on June 5 since CPI inflation remains below target so far, financial conditions are tightening anyway, and the RBI may not want to give the impression that it is using rate hikes for forex defence.
On the real estate sector expectations, Kunal Rishi, COO, Krisumi Corporation, said the RBI is currently navigating a complex macroeconomic environment, where it must carefully balance inflation management with the need to sustain growth momentum.
“…we believe the RBI should maintain its growth-supportive stance. The ideal approach would be to keep rates unchanged to support economic activity. For the housing sector, lower borrowing costs are critical to sustaining homebuyer demand and enhancing affordability,” Rishi opined.
Tanuj Shori, â€CEO of Square Yards, said the residential real estate market has shown remarkable resilience, driven by strong end-user demand, rising household incomes, and a growing preference for homeownership. The cumulative rate cuts over the past year have already improved affordability and borrowing conditions.
“Looking ahead, policy measures that balance growth and inflation while supporting liquidity in the financial system will help sustain housing demand in key markets. For prospective homebuyers, predictability of interest rates is a crucial factor in their purchasing decisions, and continued macroeconomic stability will further enhance confidence in the sector,” Shori said.
Gaurav Maheshwari, CFO, Alankit Limited, opined that while domestic economic fundamentals and corporate earnings remain resilient, recent cost-driven supply shocks-notably from escalating fuel prices and heightened global commodity volatility-are pushing retail inflation projections closer to the 5 per cent mark.
“For India Inc, a continued neutral stance ensures predictable borrowing costs in the short term, sustaining corporate credit momentum,” he said.
Mythri Kumar, co-founder and CEO, TimbuckDo, said a stable interest rate environment will help sustain business confidence, encourage investments, and create more opportunities for students, freelancers, and emerging enterprises that are increasingly contributing to the country’s economic momentum.
“As India continues to witness strong entrepreneurial activity and growing participation in flexible work and gig opportunities, we hope the Monetary Policy Committee maintains a growth-supportive stance,” Kumar said.
The Reserve Bank had reduced the policy rate cumulatively by 100 bps in 2025-26. (PTI)
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