RBI to Hold Rates in June Meet
Mumbai: Despite the sharp depreciation in the Indian rupee, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is unlikely to hike interest rates just to defend the currency, economists said. They expect the central bank to manage the currency through foreign exchange market interventions and non-policy measures rather than monetary tightening.
The Indian rupee recklessly depreciated by Rs 5 per dollar (from Rs 90 to Rs 95) in just 152 days. It reached 96.83 against the US dollar on May 20, 2026. Over the calendar year, the rupee has fallen 5.5 per cent against the dollar so far.
The six-member MPC, led by Governor Sanjay Malhotra, began its three-day deliberations on Wednesday and will announce the results on Friday. The meeting took place at a time of increasing uncertainty due to global conflicts, rising crude oil prices, sharp depreciation of the rupee, slowing growth, foreign portfolio investor outflows and monsoon risks. The rupee has become Asia’s worst-performing currency, with foreign investors shedding $22.7 billion worth of stocks since the start of the West Asian war. Foreign investor outflow for FY27 YTD stands at $10.6 billion.
Dipanwita Mazumdar, economist at Bank of Baroda, says: “Currently the spread between India and US 10-year yield is maintained at 255 basis points. Therefore, there may be logic for the RBI to defend the currency by hiking rates and attracting higher capital inflows. But the currency is
Management through rate action does not fall directly within the scope of monetary policy. Therefore, we expect the RBI to maintain its current position on rates and allow the INR to find its own desired level. “RBI intervention through spot and forward buying/selling is likely to continue.”
On Wednesday, the rupee continued its losing streak for the second consecutive session and lost 44 paise to close at 95.70 against the US dollar. The currency has remained under pressure due to persistent capital outflows, rising crude oil prices amid concerns over US President Donald Trump’s tariff proposals and rising geopolitical tensions in the Middle East.
The dollar index rose on safe haven buying following the news that Iran attacked US bases in Kuwait and the US violated the still-discussed ceasefire by attacking the Iranian city of Qeshm. The barrel price of Brent oil rose to $97.70. Indian stocks fell 1.25 percent, maintaining the dollar’s rise over the rupee.
The MPC reduced the policy repo rate by a cumulative 125 basis points in 2025 and kept interest rates constant in the February and April meetings.
In its latest 2026 Annual Report, the RBI has forecast the domestic economy to be resilient and grow at 6.9 per cent for 2026-2027 in a moderate global growth environment with retail inflation at 4.6 per cent with upside risks. In 2025-2026, the Indian economy is estimated to be 7.6 percent in a stable global growth environment, up from 7.1 percent in 2024-2025, amid multiple headwinds.
The macro backdrop has improved in many important respects since the last MPC meeting in April. Brent briefly rose to $126 per barrel, then fell 25 percent to $94 per barrel.
The most notable change since the last policy has been the increase in petrol and diesel prices to consumers, with cumulative increases in pump prices of Rs/litre and CNG prices of Rs 4-7/litre, indicating a direct inflationary impact of ~40 basis points as per the Emkay Global report.
Central banks in emerging markets are taking a more hawkish tone as price pressures continue to mount.
