RBI Monetary Policy: Central bank keeps real GDP growth projection unchanged at 6.5% for FY26

RBI MPC Meeting: The Reserve Bank of India, in its second monetary policy meeting of the financial year 2025-26 (FY26), Friday, June 6, kept the real GDP growth forecast unchanged at 6.5% for FY26. 

While domestic economic activity has shown resilience so far this year, the RBI, under Governor Sanjay Malhotra, cited trade policy uncertainty, geopolitical tensions, and weather-related risks as reasons for maintaining the growth projection at the same level as announced in the first policy meeting of the fiscal year.

For Q1 FY26, the GDP growth forecast was maintained at 6.5%. The projections for Q2, Q3, and Q4 of FY26 were also left unchanged at 6.7%, 6.6%, and 6.6% respectively.

According to RBI Governor Sanjay Malhotra, industrial activity is recovering gradually, although the pace remains somewhat uneven. At the same time, the services sector is expected to maintain its momentum into May 2025.

On the demand front, Malhotra noted that private consumption continues to be the mainstay of aggregate demand. It remains healthy, with a gradual rise in discretionary spending. Rural demand is steady, while urban demand is showing signs of improvement. Investment activity is also picking up, as reflected in high-frequency indicators tracked by the central bank.

He added that merchandise exports recorded strong growth in April 2025, partly due to front-loading of shipments, while services exports continue to follow a positive trajectory. The outlook for the agriculture sector and rural demand is expected to receive further support from the forecast of above-normal southwest monsoon rainfall.

Malhotra emphasised the central bank’s continued confidence in the Indian economy, supported by improvements in high-frequency indicators and sustained momentum in the services sector, which is expected to further boost urban consumption.

However, he also highlighted ongoing trade policy uncertainties, which continue to weigh on merchandise exports. The conclusion of a Free Trade Agreement with the UK and the rapid progress in negotiations with the US are expected to support trade going forward.

Despite these positive trends, Malhotra cautioned that downside risks persist due to geopolitical tensions, global trade disruptions, and weather-related uncertainties. Taking all these factors into account, he said the RBI maintains a cautiously optimistic outlook for economic growth.

RBI slashes repo rate for 3rd time in a row

As widely expected, the RBI slashed the repo rate for the third consecutive time but surprised the Street by announcing a 50 basis point cut. With a total reduction of 100 basis points over the last three meetings, the RBI has brought the repo rate—the rate at which it lends to commercial banks—down to 5.5% from 6.5%.

The decline in consumer prices in recent months, which hit a six-year low in April, has given the central bank the confidence to proceed with this bumper rate cut.

The minutes of the MPC’s meeting will be published on June 20, 2025, while the next meeting of the MPC is scheduled from August 4 to 6, 2025.