The RBI held the repo rate at 5.25% again in June, lowered its growth forecast for 2026-27 to 6.6% and raised its inflation forecast to 5.1%. It also announced measures to draw foreign money back into India.
Central banks dislike one combination of forecasts more than any other: slower growth and faster inflation at the same time. On June 10, the RBI published exactly that. It cut its GDP growth forecast for 2026-27 to 6.6% and raised its inflation forecast to 5.1%, while holding the repo rate at 5.25% for a third straight meeting this year.
Why the combination is so hard
When growth slows on its own, a central bank cuts rates to help. When inflation rises on its own, it raises rates to cool demand. When both happen together, the two tools point in opposite directions. Economists call the extreme version of this stagflation, and while India is nowhere near it, the RBI’s forecasts moved in that direction. The cause is the same for both numbers: oil. Expensive energy raises prices and, by squeezing household budgets and company margins, slows growth too.
An oil shock is a tax on growth and a push on prices, delivered in one package.
Calling foreign money back
Alongside the decision, the RBI announced measures to attract foreign capital and steady the rupee, making it easier and more attractive for foreigners and Indians abroad to bring money into the country. These are classic tools for a central bank defending its currency without raising rates: increase the supply of dollars rather than raise the price of rupees.
The decision to hold was a bet that the oil shock would fade. A peace process between the US and Iran was under way, and the RBI preferred waiting to see if oil fell rather than tightening into a slowdown. For households, it means EMIs stay flat for now. It also means the hoped-for second round of rate cuts has quietly been taken off the table.
Sources: RBI Monetary Policy Statement, June 2026.
- The RBI held the repo rate at 5.25% for a third straight meeting in 2026.
- It cut its 2026-27 growth forecast to 6.6% and raised its inflation forecast to 5.1%.
- Slower growth with higher inflation is the hardest combination for any central bank.
- New measures aim to attract foreign capital and steady the rupee.
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