FX.co ★ India Holds Rates, Revises Down FY26/27 GDP Forecasts

The Reserve Bank of India (RBI) left its key repo rate unchanged at 5.25% at its June meeting, marking the third consecutive decision to hold rates steady, and maintained a neutral policy stance amid a weakening rupee. The move was widely anticipated by markets, as the conflict in the Middle East continued to pose downside risks to GDP growth and stoke inflationary pressures.

On the macroeconomic outlook, the RBI revised down its GDP growth forecast for FY2026/27 to 6.6%, from its earlier projection of 6.9%. It now expects GDP to expand by 6.6% in the first quarter of the fiscal year and 6.3% in the second quarter, with growth seen at 6.5% and 6.8% in the third and fourth quarters, respectively.

At the same time, the RBI raised its inflation forecast, projecting average inflation at 5.1%, up from its previous estimate of 4.6%. The revision mainly reflects higher prices for LPG, base metals, plastics, and rubber. Inflation is now expected at 4.2% in Q1, 5.1% in Q2, and 5.9% in both Q3 and Q4.