In News:

The RBI's Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 5.25%, retained a Neutral policy stance, revised the FY27 growth and inflation outlook, and announced measures to boost foreign capital inflows and support the rupee.

Key Highlights

• Policy Rates (Unchanged):
  • Repo Rate: 5.25%
  • Standing Deposit Facility (SDF): 5.00%
  • Marginal Standing Facility (MSF): 5.50%
  • Bank Rate: 5.50%
• GDP Growth (FY27): Revised down to 6.6% (from 6.9%).
• Inflation (FY27):
  • Headline CPI: 5.1% (up by 50 bps).
  • Core Inflation: 4.7%.
• Policy Stance: Continued Neutral, enabling a data-driven approach to future rate decisions.

Key Risks Identified

• Global Uncertainty: Geopolitical tensions and crude oil averaging USD 110/barrel (Apr–May 2026) have raised input costs.
• Climate Risks: Forecast of a sub-normal Southwest Monsoon and emerging El Niño pose risks to agriculture and food inflation.
• Second-Round Inflation: RBI cautioned against food and fuel price shocks feeding into wages and inflation expectations.

Measures to Attract Foreign Capital & Stabilise the Rupee

• Tax Relief: Waiver of 12.5% LTCG tax and interest income tax on FPIs investing in Government Securities (effective 1 April 2026).
• Expanded Fully Accessible Route (FAR): Included 15-, 30-, and 40-year G-Secs and Sovereign Green Bonds, allowing unrestricted FPI investment.
• FPI Liberalisation: Removed short-term, concentration, and security-wise limits under the General Route, while retaining overall ceilings (6% for Central G-Secs; 2% for State G-Secs).
• NRI/OCI Reforms: Increased investment limits in listed equities; similar treatment extended to eligible Persons Resident Outside India (PROIs).
• Forex Support: Concessional forex swap facility and FCNR(B) hedging support extended till 30 September 2026.
• Export Realisation: Timeline reduced from 15 months to 9 months to improve forex liquidity.
• Forex Policy: RBI reiterated that it does not target a fixed exchange rate and will use its foreign exchange reserves to curb excessive rupee volatility.