The Reserve Bank of India's Monetary Policy Committee (MPC) commenced its three-day meeting on Wednesday, June 3, with Governor Sanjay Malhotra set to announce the committee's decision on Friday, June 5. According to reports from The Hindu BusinessLine, the committee faces continuously shifting positions and seemingly contradictory objectives, making it difficult to predict how long tensions in West Asia will persist. The Strait of Hormuz, through which about a fifth of global crude oil flows, remains closed, adding to the policy complexity. Economists polled by NDTV Profit expect the six-member panel to keep the repo rate unchanged at 5.25% and retain its "neutral" stance, adopting a wait-and-watch approach as they assess the impact of the ongoing West Asia conflict on the Indian economy.
Global crude oil prices have extended their rally for a third straight session, with Brent crude climbing towards $97 per barrel while West Texas Intermediate (WTI) hovered near $95 after gaining more than 7 per cent in the first two trading sessions of the week. The latest surge comes as Israel continues military strikes in Lebanon, threatening already fragile diplomatic efforts between Washington and Tehran. Iran has also launched missiles at neighbouring countries, further heightening concerns over regional stability and potential disruptions to energy supplies. Benchmark Brent crude oil prices remain about 40 per cent higher than pre-conflict levels, creating significant economic challenges. As per The Hindu BusinessLine, surging energy prices, continuing supply chain woes and a depreciating rupee, primarily driven by external challenges, are keeping the economy open to supply shocks.
The Indian rupee has witnessed sharp volatility and recently weakened to nearly 97 to a dollar before recovering some of the lost ground, adding another layer of complexity to the policy environment. According to SS WealthStreet, the persistence of geopolitical uncertainty, coupled with disruptions in global supply chains and energy markets, has made the policy environment increasingly difficult for the RBI and the Monetary Policy Committee. The central bank's repo rate has been reduced by a total of 100 basis points in 2025-26, with rates remaining unchanged in February and April 2026 policy reviews. Economists expect the RBI may announce measures to support the rupee, which approached the 97-per-dollar level last month, with possible steps including FCNR deposits, NRI bonds, easier external commercial borrowing norms or a dedicated window allowing oil marketing companies to borrow in U.S. dollars.
Nomura's India Economist Aurodeep Nandi expects the RBI to maintain current interest rates, despite rising fuel costs and potential monsoon issues. The recent hike in petrol and diesel prices — totalling around ₹7.5 per litre along with CNG price increases, are expected to add roughly 50 basis points to inflation. However, Nandi argues that the data does not yet justify a tightening response, as the key metric the RBI watches is 'super core' inflation — the consumer price index stripped of petrol, diesel, gold, and silver. This measure currently sits at just 2.2%, indicating that firms are largely absorbing cost pressures rather than passing them on to consumers. Gaura Sen Gupta, Chief Economist at IDFC First Bank, expects the RBI to stay on pause as inflation remains within the inflation-targeting band, noting that there is downside risk to growth due to the surge in input costs. 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.
Economists expect the MPC to maintain the current policy rate and stance as the RBI may prefer to wait for additional consumer inflation data before taking action. Sujit Kumar, chief economist at NABFID, expects two rate increases of 25 basis points each later in the financial year, while noting that the tone of the policy statement will remain important, as the possibility of policy rate increases later in the year cannot be ruled out if the West Asia conflict continues for an extended period. Rajani Sinha, chief economist at CAREEdge Ratings, said the RBI is likely to maintain a wait-and-watch approach amid external volatility while assessing whether current price pressures are temporary or more persistent. A prolonged conflict could prompt the MPC to consider a 25-50 basis point increase in the repo rate during the second half of the current financial year, with economists also expecting the central bank to lower its GDP growth forecast and raise its inflation projection if external pressures persist.
