{"id":106959,"date":"2026-06-06T11:14:35","date_gmt":"2026-06-06T05:44:35","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=106959"},"modified":"2026-06-06T11:14:35","modified_gmt":"2026-06-06T05:44:35","slug":"monetary-policy-committee-mpc-rbi-holds-rates-amid-west-asia-crisis","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/monetary-policy-committee-mpc-rbi-holds-rates-amid-west-asia-crisis\/","title":{"rendered":"Monetary Policy Committee (MPC) &#8211; RBI Holds Rates Amid West Asia Crisis"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>Monetary Policy Committee (MPC) Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Reserve Bank of India (RBI), through its <\/span><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/monetary-policy-in-india\/\" target=\"_blank\">Monetary Policy Committee (MPC)<\/a><\/strong><span style=\"font-weight: 400;\">, has kept the <\/span><b>repo rate unchanged<\/b><span style=\"font-weight: 400;\"> at 5.25% despite rising inflationary pressures stemming from the West Asia conflict, elevated crude oil prices, and global economic uncertainties.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Simultaneously, the RBI has revised growth and inflation projections and introduced measures to attract foreign capital inflows.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Reasons for Keeping Rates Unchanged<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">The MPC adopted a cautious &#8220;<\/span><b>wait-and-watch<\/b><span style=\"font-weight: 400;\">&#8221; approach amid increasing uncertainty in the global economy.<\/span><\/li>\n<li><b>Key reasons:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Escalating tensions involving the US, Israel, and Iran have increased risks of higher energy prices, supply-chain disruptions, financial market volatility, and global trade uncertainty.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">India is also facing capital outflows, pressure on the rupee, and stress on foreign exchange reserves.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Implications of status quo:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Repo Rate remains at 5.25%, the rate at which RBI lends to commercial banks.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Lending and deposit rates are likely to remain stable.<\/span><\/li>\n<li><b>EMIs <\/b><span style=\"font-weight: 400;\">on home, vehicle, personal and business loans are expected to remain unchanged.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Businesses gain a predictable borrowing environment for investment planning.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Borrowers receive relief from any immediate increase in financing costs.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Growth Outlook Weakens<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">RBI revises GDP growth forecast for FY27 from 6.9% to <\/span><b>6.7%<\/b><span style=\"font-weight: 400;\">. This marks a cumulative reduction of about 100 basis points from earlier expectations.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Factors behind lower growth:<\/b><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Elevated crude oil prices.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Disruptions in global supply chains.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Geopolitical instability in West Asia.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Financial market volatility.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Weather-related disturbances affecting economic activity.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>RBI&#8217;s assessment: <\/b><span style=\"font-weight: 400;\">While domestic demand remains resilient and manufacturing and services continue to expand, external shocks are expected to moderate overall economic growth.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Inflation Risks Intensify<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">The Consumer Price Index (CPI) inflation forecast for FY27 has been raised from 4.6% to 5.1%. The revised estimate exceeds the RBI&#8217;s medium-term inflation target of 4%.<\/span><\/li>\n<li><b>Drivers of inflation:<\/b>\n<ul>\n<li><b>Rising fuel prices: <\/b><span style=\"font-weight: 400;\">Retail fuel prices have already increased by around \u20b97.5 per litre. Higher crude oil prices may lead to further revisions.<\/span><\/li>\n<li><b>Direct impact on inflation<\/b><span style=\"font-weight: 400;\">: Fuel price increases could add approximately 35 basis points (bps) to headline CPI inflation.<\/span><\/li>\n<li><b>Indirect inflationary effects: <\/b><span style=\"font-weight: 400;\">Transportation and logistics costs may increase. Additional impact estimated at 10\u201315 bps.<\/span><\/li>\n<li><b>Food inflation risks: <\/b><span style=\"font-weight: 400;\">Heatwave conditions may affect agricultural output and food prices.<\/span><\/li>\n<li><b>Producer price pressures: <\/b><span style=\"font-weight: 400;\">The Wholesale Price Index (WPI) inflation rose sharply to 8.3%, increasing the likelihood of pass-through to consumers.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Future monetary policy: <\/b><span style=\"font-weight: 400;\">If geopolitical tensions persist and inflation expectations become entrenched, analysts believe the RBI may consider rate hikes later in the year.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>RBI\u2019s Measures to Attract Foreign Capital<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">To strengthen external financing conditions and support economic growth, the RBI announced several capital inflow-enhancing measures.<\/span><\/li>\n<li><b>Concessional forex swap facility for PSUs:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Available until September 30, 2026, it is designed to encourage External Commercial Borrowings (ECBs) by Public Sector Undertakings (PSUs).<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Significance:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Reduces hedging and borrowing costs.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Enables PSUs in sectors such as oil, power and infrastructure to access cheaper overseas funds.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Supports investment and infrastructure spending.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Incentives for FCNR(B) deposits:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The RBI will provide full hedging support for banks mobilising Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits with maturities of 3\u20135 years.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>FCNR(B) account:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Fixed deposit account maintained by Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Deposits are held in foreign currencies such as USD, GBP, EUR and CAD.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Protects depositors from exchange-rate fluctuations.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Expected benefits: <\/b><span style=\"font-weight: 400;\">Banks can offer more attractive interest rates. Increase in stable foreign currency inflows. Improved foreign exchange liquidity. Strengthening of India&#8217;s external sector.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Liberalisation of Foreign Investments<\/b><\/h2>\n<ul>\n<li><b>Expansion of Fully Accessible Route (FAR):<\/b><span style=\"font-weight: 400;\"> The RBI expanded the universe of government securities eligible under the FAR.<\/span><\/li>\n<li><b>Key changes:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Inclusion of all new 15-year, 30-year, and 40-year government securities.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Removal of restrictions on short-term investments, concentration limits, and individual security exposure for Foreign Institutional Investors (FIIs).<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Significance: <\/b><span style=\"font-weight: 400;\">Enhances foreign participation in government bond markets. Supports government borrowing programmes. Deepens India&#8217;s debt market.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Greater Access for Overseas Investors<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Equity investments: <\/b><span style=\"font-weight: 400;\">Higher investment limits for NRIs and OCIs in listed equity instruments. Similar benefits extended to all Persons Resident Outside India (PROIs) without mandatory SEBI registration.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Export promotion: <\/b><span style=\"font-weight: 400;\">RBI proposes restoring the time limit for realisation of export proceeds to nine months, supporting trade and foreign exchange earnings.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>RBI Governor\u2019s Remarks on Indian Economy<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Indian Rupee is not undervalued:<\/b><span style=\"font-weight: 400;\">\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">According to the REER, the rupee may actually be overvalued, indicating RBI&#8217;s preference for avoiding artificial exchange-rate management and maintaining market-based valuation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>REER (Real Effective Exchange Rate)<\/b><span style=\"font-weight: 400;\">: Measures a currency&#8217;s value against major trading partners&#8217; currencies after adjusting for inflation, indicating international competitiveness.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Competition for deposits is healthy: <\/b><span style=\"font-weight: 400;\">As long as competition remains transparent and fair, it can improve financial intermediation and benefit depositors through better returns.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Private capital expenditure (Capex) showing improvement<\/b><span style=\"font-weight: 400;\">: The investment-to-GDP ratio has been rising, suggesting strengthening business confidence.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Plastic\/polymer currency notes under consideration: <\/b><span style=\"font-weight: 400;\">The central bank is evaluating the costs, benefits, durability, and overall viability before taking a final decision.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Conclusion<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While holding rates steady protects economic activity amid global uncertainty, upward revisions in inflation forecasts highlight growing price pressures.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Measures to attract foreign capital seek to strengthen the Balance of Payments (<\/span><b>BoP<\/b><span style=\"font-weight: 400;\">), <\/span><b>stabilise <\/b><span style=\"font-weight: 400;\">the rupee, and improve foreign exchange liquidity in an environment marked by rising geopolitical and economic risks.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Going forward, sustaining growth while containing imported inflation and ensuring adequate foreign capital inflows will remain central to India&#8217;s monetary and external sector strategy.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/rbi-repo-rate-unchanged-growth-forecast-cut-inflation-outlook-raised-10725059\/\" target=\"_blank\" rel=\"nofollow noopener\"><b>IE<\/b><\/a><b> |\u00a0<\/b><a href=\"https:\/\/indianexpress.com\/article\/business\/rbi-foreign-borrowing-rules-psus-fcnr-deposits-banks-10725432\/#:~:text=In%20a%20coordinated%20policy%20push,currency%20deposit%20mobilisation%20by%20banks%2C\" target=\"_blank\" rel=\"nofollow noopener\"><b>IE<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI, through its Monetary Policy Committee (MPC), has kept the repo rate unchanged at 5.25% despite rising inflationary pressures stemming from the West Asia conflict.<\/p>\n","protected":false},"author":19,"featured_media":106970,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[2335,7997],"class_list":{"0":"post-106959","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-monetary-policy-committee","9":"tag-monetary-policy-committee-mpc","10":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/106959","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=106959"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/106959\/revisions"}],"predecessor-version":[{"id":106978,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/106959\/revisions\/106978"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/106970"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=106959"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=106959"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=106959"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}