RBI may stay on pause as inflation clouds outlook

A Mint poll suggests the central bank may also maintain its neutral stance

- Subhana Shaikh

India’s central bank is expected to keep interest rates unchanged despite a sharp depreciation in the rupee and repeated fuel price hikes following the West Asia conflict, a Mint poll of 10 economists showed.

The Reserve Bank of India (RBI) is likely to maintain the policy repo rate at 5.25% this week, the poll found. The repo (repurchase) rate is the rate at which the central bank lends money to commercial banks for short-term requirements, typically against government securities as collateral.

The RBI’s Monetary Policy Committee (MPC) is scheduled to announce its policy decision after its 3-5 June meeting. The central bank is also expected to maintain its ‘neutral’ stance, which allows it to raise or cut rates even as it grapples with a rapidly depreciating rupee, elevated crude oil prices and the risk of imported inflation.

“Research across cycles indicates that the blunt tool of a rate hike is not well-suited to managing the currency, making such a move at the upcoming meeting unlikely,” said Tanay Dalal, senior vice-president-II, business and economic research at Axis Bank.

RBI officials, too, are not in favour of using the rate hike tool now, said a person aware of discussions at the central bank. The last time the MPC cut repo rate was by 25 basis points in December.

The RBI has come under pressure after the rupee’s sharp slide against the dollar in recent months, fuelling speculation that policymakers could consider a rate hike to defend the currency.

Since the US-Iran war began on 28 February, the Indian currency has depreciated by over 5% to hit a record low of 96.95 per US dollar. In 2025-26, the local unit plummeted over 11%, according to Bloomberg data. On Friday, it ended at 95 against the greenback.