The Reserve Bank of India's Monetary Policy Committee kept the repo rate unchanged at 5.25% on June 5, continuing its pause after a series of rate cuts over the past year. As reported by Reuters, the decision comes as India's GDP growth projection was lowered to 6.6% from 6.9% for FY27, citing concerns over global uncertainties, elevated crude oil prices and supply-side disruptions. The Sensex rose 212.55 points (0.29%) to 74,572.56 and Nifty advanced 53.85 points (0.23%) to 23,470.40 following the policy announcement. Domestic Institutional Investors provided strong support by purchasing equities worth ₹4,360.14 crore, largely offsetting foreign outflows of ₹4,447.06 crore. The RBI's rate panel voted unanimously to keep the policy repo rate unchanged at 5.25%, a decision predicted by nearly 80% of 56 economists polled by Reuters.
RBI Governor Sanjay Malhotra projected CPI inflation at 5.1% for FY27 with core inflation at 4.7%, maintaining the central bank's inflation target of 4%. According to Reuters, Malhotra noted that "although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge," adding the central bank will remain "data dependent." The central bank's revised projections underscore growing caution, with inflation projected at 5.1% and growth at 6.6%. As reported by Reuters, Malhotra emphasized that "the entire policy continuity is still there. The medium term, the capital expenditure will continue, and so on and so forth." The RBI revised its CPI inflation forecast for FY27 upwards from 4.6% to 5.1%, while lowering its real GDP growth projection from 6.9% to 6.6%, reflecting the central bank's cautious tone on the economic outlook.
The rupee strengthened 0.6% to 95.24 after the RBI's comprehensive measures to attract dollar inflows. According to Reuters, the government announced it will scrap capital gains tax for foreign investors and remove the 20% tax on interest earned from such investments, effective from April 1, 2026. The RBI will offer concessional forex swaps until September 30 to encourage state-owned firms to tap dollar borrowings and will compensate banks for hedging costs on 3-year and 5-year foreign currency non-resident deposits aimed at the Indian diaspora. Sachchidanand Shukla of Larsen & Toubro estimates the measures could draw in $40 billion to $60 billion. The rupee has slid 5% this year after a similar drop in 2025, with economists warning higher oil prices and capital outflows could widen India's balance of payments deficit to about $65 billion this fiscal year. As per Mint, the global economic outlook remains clouded by the continuing geopolitical impasse in West Asia, as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity.
With inflationary pressures building and many analysts expecting rate hikes later in FY27, experts are recommending specific investment strategies for mutual fund investors. Vaibhav Porwal of Dezerv suggests favouring short-duration debt funds over long-duration strategies, noting that "when the next policy move is more likely to be a hike than a cut, the focus should shift from capital appreciation to income protection." Basant Bafna of Mirae Asset Investment Managers also sees value in the shorter end of the curve, stating that "Ultra Short and Low Duration categories hold significant value as the curve remains significantly flat with tactical allocations into long duration." On equity side, experts suggest moving away from expensive growth stories, with Vaibhav Porwal highlighting that "the rate environment reinforces a preference for value over growth." Nirali Bhansali of Samco Mutual Fund believes investors need to be selective, stating "on equities, it is a stock picker's market, and investors must be careful while selecting stocks with good growth potential and low valuation."
