RBI Announces Measures to Bolster Balance of Payments, Enhance Domestic Liquidity and Revitalize Bond Market Sentiment

Reserve Bank of India's Monetary Policy Committee Takes a Steady Approach

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) concluded its second innings of FY27 from June 3-5, 2026, opting for a cautious and risk-aware approach. In line with expectations, the MPC unanimously decided to maintain the policy repo rate at 5.25 percent, while retaining the "neutral" stance. This decision was accompanied by a continued wait-and-watch approach, as reflected in the Liquidity Adjustment Facility (LAF) corridor, with the standing deposit facility (SDF) at 5 percent and the marginal standing facility (MSF) along with the bank rate at 5.5 percent.

The RBI's growth forecasts have been revised downward, with real GDP growth for FY26 estimated at 7.6 percent (Second Advance Estimate) and FY27 growth revised to 6.6 percent from 6.9 percent. This downward revision is primarily attributed to external headwinds, including the ongoing Middle East conflict, subdued global demand, and volatile financial markets. However, domestic conditions remain resilient.

Inflation Projections and Key Risks

Read also: CBI Conducts Searches in IDFC First Bank-AU Small Finance Bank Fraud Case Worth Rs 661 Crore

On the inflation front, headline CPI is projected to rise to 5.1 percent in FY27, driven mainly by higher energy prices, expected food price pressures due to a weaker monsoon, and possible second-round effects. Core inflation remains contained at around 3.7 percent, with an even lower rate of around 2.1-2.2 percent excluding precious metals. Key risks to inflation include supply chain disruptions, elevated commodity prices, and El Niño-related weather conditions.

System Liquidity and Forex Reserves

System liquidity remains comfortable, supported by RBI's liquidity operations, with an average surplus of Rs 2.63 lakh crore (LAF basis). Forex reserves stand at approximately $682 billion, covering about 11 months of imports. Despite the net outflows from the debt segment, the rupee has been under pressure, with net outflows of $0.3 billion.

Government Measures to Attract Foreign Capital

Read also: Nestle India Posts FY26 Sales Revenue of ₹23,071 Crore, Pays ₹1,024.5 Crore in Royalties to Parent Entity

To combat the net outflows and promote foreign capital inflows, the RBI and the government have announced several measures:

Policy Outcome and Expectations

The policy outcome is likely to be remembered for the RBI's calibrated approach, achieving objectives through a series of measured moves rather than a single large rate adjustment. These steps are expected to support the balance of payments, improve domestic liquidity, and revive sentiment in the bond market, potentially attracting inflows of around $75 billion. On the yield curve, corporate bonds are expected to exhibit a steepening bias, while the G-sec curve is likely to flatten. The 10-year G-sec yield softened to around 6.93 percent from ~7 percent post-policy, reflecting improved sentiment. The MPC is expected to remain data-dependent and closely track supply-side pressures and global developments before taking further rate decisions in the August policy.