RBI’s repo rate decision reflects wait-and-watch approach to assess evolving global situation
New Delhi, June 5 (IANS) The RBI’s repo rate decision reflects the wait-and-watch approach to assess the evolving impact of external developments and their implications for domestic growth and inflation before going for interest rate adjustments, industry leaders and economists said on Friday.
Amid elevated energy prices, risk of below-normal monsoon and persistent supply-side bottlenecks, the RBI also revised its FY27 GDP growth forecast downward to 6.6 per cent, from 6.9 per cent earlier, with a more pronounced moderation expected in the second half of the fiscal year.
“A key highlight of the MPC policy was the announcement of measures aimed at attracting foreign capital inflows, such as expanding the universe of securities eligible under the Fully Accessible Route for foreign investors, providing concessional forex swap facilities for PSUs raising ECBs, and absorbing hedging costs on FCNR(B) deposits,” said Rajani Sinha, Chief Economist, CareEdge Ratings.
Additionally, the government also removed taxes on capital gains and interests for foreign investors in government securities.
While the current account deficit is expected to widen to 2.1 per cent of GDP in FY27, it is relatively better compared with levels witnessed during previous episodes of stress, such as the taper-tantrum episode, where it averaged 3.6 per cent of GDP, Sinha mentioned.
Srinivasan Vaidyanathan, Operating Partner, Essar Capital, said that the RBI’s decision to maintain the repo rate at 5.25 per cent with a neutral stance is a balanced response to a genuinely challenging macro environment.
“The more telling signal lies in the central bank’s evident caution on inflation, against a backdrop of elevated crude prices and a weaker rupee. This suggests that while the RBI remains supportive of growth for now, it is increasingly vigilant about external risks, and future actions will depend heavily on how energy prices and currency dynamics evolve,” he said.
For capital-intensive businesses, the steadiness on rates is welcome, preserving the predictability that underpins long-cycle investment, Vaidyanathan mentioned.
Ajay Kumar Srivastava, Managing Director and CEO, Indian Overseas Bank, said even as the economy demonstrates resilience, with growth projected at 6.6 per cent for FY27, a cautious stance is warranted given geopolitical tensions in West Asia and elevated energy prices.
“By keeping rates steady, the RBI reinforces the sustainability of the ongoing recovery while ensuring predictability in borrowing costs, a welcome relief for both households and businesses,” he said in a statement.
Dhanpat Nahata, Managing Partner, Essar Capital, said that with global uncertainty and energy prices rising, markets are likely to remain sensitive to inflation and currency developments.
“The neutral policy stance offers stability for now, but enterprises will continue to assess how evolving global conditions impact growth, liquidity and overall market sentiment,” he said.
–IANS
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