No rate cut! RBI keeps repo rate unchanged, sees 6.7% growth but warns inflation will rise

The six-member Monetary Policy Committee (MPC) unanimously voted to keep the policy repo rate unchanged at 5.25 per cent, while retaining its neutral policy stance.

Inflation rises above target after 16 months

Consumer Price Index (CPI) inflation rose to 4.4 per cent in June 2026, moving above the RBI's target after remaining below it for 16 consecutive months.

However, the central bank noted that inflation was 30 basis points lower than its earlier projection for the first quarter of FY27.

According to the RBI, the increase in inflation was driven primarily by higher food and fuel prices.

Food inflation witnessed broad-based price pressures across most categories during May and June, while fuel inflation increased following a revision in retail fuel prices amid a sharp spike in global energy prices.

The rise in fuel costs also pushed up prices in certain services, including restaurant charges.

Core inflation remains benign

Despite higher input costs, core inflation—which excludes food and fuel—remained unchanged at 3.9 per cent during May and June.

Excluding precious metals, core inflation stayed even lower, ranging between 2.3 per cent and 2.5 per cent, indicating that underlying demand pressures remain contained.

RBI's inflation outlook

The RBI has projected CPI inflation at 5 per cent for FY27, with the following quarterly estimates:

Q2: 4.7%
Q3: 5.9%
Q4: 5.5%
Q1 FY28: 5.3%

The central bank said risks to the inflation outlook remain evenly balanced.

It also projected core inflation at 4.3 per cent for FY27, while noting that core inflation excluding precious metals is likely to remain lower in the near term.

Governor Sanjay Malhotra explains MPC's decision

Announcing the monetary policy, RBI Governor Sanjay Malhotra said the MPC observed that headline inflation had moved above the target largely as anticipated.

"The realised inflation for Q1, however, remained marginally lower than projections, reflecting limited pass-through of cost pressures. The higher inflation is mostly on account of fuel and food, with little signs of generalisation of price pressures so far," he said.

Malhotra added that core inflation excluding precious metals continues to remain benign, suggesting demand-side inflationary pressures are still subdued.

He further said headline inflation is expected to rise further in the near term and peak in the third quarter of FY27, driven mainly by food and fuel prices, before easing in the subsequent quarters.

"The underlying inflation, reflected by core inflation excluding precious metals, which has been benign for some time, is set to align with core inflation towards the end of the financial year," the RBI Governor said.