RBI Bulletin - June 2026

 Monetary Policy Statement, 2026-27: Resolution of the Monetary Policy Committee (MPC) June 03 to 05, 2026

Monetary Policy Decisions The Monetary Policy Committee (MPC) held its 61st meeting from June 3 to 5, 2026, under the chairmanship of Shri Sanjay Malhotra, Governor, Reserve Bank of India. The MPC members Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Prof. Ram Singh, Dr. Poonam Gupta and Shri Indranil Bhattacharyya attended the meeting.

After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25 per cent. Consequently, the standing deposit facility (SDF) rate remains at 5.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate remain at 5.50 per cent. The MPC also decided to continue with the neutral stance.

Growth and Inflation Outlook

Global Outlook As the West Asia conflict prolongs without any meaningful resolution in sight, risks to both inflation and growth have increased. Energy markets have been volatile; crude oil reserves are declining and global commodity prices have firmed up. Faced with difficult trade-offs, monetary policy has turned more cautious, and major advanced economy central banks are likely to pivot towards monetary policy tightening. Global financial markets have shown mixed trends, with equities remaining buoyant driven by AI optimism, while sovereign bond yields have hardened on fiscal sustainability concerns and inflation worries. The US dollar index has appreciated recently amid shifting rate expectations and changing risk sentiment.

Domestic Outlook As per several high frequency indicators, domestic economic activity remained largely steady since the outbreak of the conflict. Private consumption has been resilient, while fixed investment maintained its momentum despite cost pressures. Merchandise exports recorded strong growth in April 2026, though elevated freight and insurance costs remain a drag. Services exports continued to be robust. While the economy has withstood the conflict spillovers with limited impact so far, the strains are increasingly becoming visible.

Looking ahead, elevated energy and other commodity prices coupled with continued supply disruptions are likely to affect economic activity. While import diversification in affected commodities has helped in improving supply, it comes at a higher cost. The full impact will depend on the duration of the conflict, time taken for normalisation of supply chains, and the burden-sharing approach among stakeholders. The south-west monsoon is expected to be deficient, with implications for agricultural activity and rural demand; however, programmes for crop diversification and water conservation are expected to mitigate this impact.

Furthermore, sustained momentum in services, the continuing impact of GST rationalisation, and broadly stable employment conditions should support urban consumption. Strong capacity utilisation, sustained credit flows, and the government’s capex are expected to support investment activity. While weak global demand remains a headwind for merchandise exports, services exports are expected to remain steady. Several measures undertaken by the Government to ramp up domestic gas and crude supplies and support MSMEs have strengthened the economy’s resilience.

Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 6.6 per cent, with Q1 at 6.6 per cent; Q2 at 6.3 per cent; Q3 at 6.5 per cent; and Q4 at 6.8 per cent.

Headline CPI inflation inched up to 3.4 per cent in March and 3.5 per cent in April 2026. Fuel inflation remained modest as retail prices were largely unchanged despite spikes in international energy prices. Core inflation remained at 3.7 per cent. Since May, however, retail fuel prices were raised by 7.4 per cent for petrol and 8.4 per cent for diesel, implying a direct impact of about 36 basis points on headline inflation.

Considering these factors, CPI inflation for 2026-27 is projected to be 5.1 per cent, with Q1 at 4.2 per cent; Q2 at 5.1 per cent; Q3 at 5.9 per cent; and Q4 at 5.4 per cent. Core inflation is projected at 4.7 per cent. These forecasts are subject to upside risks from global supply chain disruptions and monsoon uncertainty, though adequate foodgrain stocks provide some comfort.

Rationale for Monetary Policy Decisions The global environment has deteriorated since the last policy meeting. The adverse implications of supply chain disruptions and elevated energy prices are reflected in the moderation of growth and increased inflation projections. CPI inflation remains below the target despite the global shock, and underlying inflation pressures continue to be benign. However, generalisation of inflation through second-round effects on expectations and wages warrants a close vigil.

The MPC was of the opinion that there are considerable risks to the baseline assessment due to uncertainty about the duration of the conflict and the pace of restoration of supply chains. Additionally, the food outlook remains uncertain due to El Niño and sub-normal monsoon forecasts. Although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity. Accordingly, the MPC voted to keep the policy rate unchanged and will continue to remain data-dependent and closely monitor developments. The MPC also decided to retain the neutral stance.

The minutes of the MPC’s meeting will be published on June 19, 2026. The next meeting of the MPC is scheduled for August 3 to 5, 2026.

Resilience by Design: Lessons from India’s Banking Sector

Shri Swaminathan J.

Speech by Shri Swaminathan J, Deputy Governor, Reserve Bank of India, on June 1, 2026, at the School of International and Public Affairs (SIPA), Columbia University.

Distinguished faculty members, dear students, ladies and gentlemen. It is a pleasure to be here at Columbia University’s School of International and Public Affairs. SIPA was established in 1946, in the aftermath of the Second World War, to deepen understanding of global affairs and prepare professionals for public service across countries, institutions and disciplines.

We meet at a time when the global policy conversation is again crowded with large themes: geopolitics, climate change, artificial intelligence, technological disruption and the reordering of supply chains. Against that backdrop, banking resilience may seem like a quieter subject. But it has one distinct feature: when it is absent, its importance is immediately recognised. A weak banking system can quickly transmit stress from financial balance sheets to firms, households, public finances and the broader economy. I would like to approach it today through India’s experience.

India’s current position: strength with vigilance India today stands on a relatively strong macroeconomic footing. Even amid geopolitical uncertainty, supply-chain disruptions and volatile commodity conditions, domestic economic activity has shown resilience, supported by strength in industrial and services activity, broad-based demand and improving corporate performance. Inflation is within the tolerance band and external vulnerabilities remain manageable. The Indian financial system enters this uncertain phase with strength: healthier balance sheets, comfortable capital buffers, improved profitability and non-performing assets at multidecade lows.

This position of strength is encouraging. But the best time to build resilience is when conditions are favourable. Central banks are sometimes seen as cautious voices in otherwise optimistic times, expected to ask difficult questions just when the party appears to be going well. Risk has a habit of building quietly in good times and introducing itself loudly when conditions change. Buffers, governance and risk discipline must be strengthened when growth is strong, asset quality appears comfortable, and risk appetite naturally rises. Resilience must therefore be built before it is tested.

India’s recent banking resilience reflects policy learning, supervisory vigilance, stronger prudential frameworks, transparent recognition of stress, credible repair mechanisms and improvements within banks themselves. Banking resilience does not arise automatically from growth or favourable conditions. It has to be designed at multiple levels: in the rules that govern banks, in the supervisory systems that detect vulnerabilities, in the resolution architecture that addresses stress, and in the behaviour of banks themselves. Let me illustrate this through five recent dimensions of resilience by design: transparent recognition of stress, balance sheet strengthening, stronger supervision, calibrated and adaptive regulation, and resilience within banks themselves.

Recognition of stress The first dimension is transparent recognition of stress. Risk often builds when conditions appear favourable. During an upswing, collateral values look adequate, projected cash flows appear reasonable, and optimism becomes embedded in credit appraisal. India’s post-2015 asset quality experience brought this into focus. The stress reflected a combination of factors, including rapid credit growth in certain sectors, challenges with long-gestation projects, delays in stress recognition, and gaps in risk management.

The Asset Quality Review was more than an accounting exercise; it changed the information regime of the banking system. Recognition required banks to provision, owners to recapitalise, borrowers to negotiate, and supervisors to intervene. Transparency changes incentives. While recognition affects reported profitability and market perception, delayed recognition is usually more costly as it weakens credit discipline and increases the eventual burden of resolution.

Balance sheet strengthening Recognition must be followed by a credible chain of action leading to balance sheet strength. Recognition without resolution can leave banks constrained. In India, this phase involved coordinated action across the public policy ecosystem. The Government provided the legal, fiscal, and institutional architecture, including the Insolvency and Bankruptcy Code (IBC). Recapitalisation of public sector banks helped absorb losses and restore lending capacity, while consolidation sought to create institutions with greater scale and capital strength.

The banking system itself also undertook significant balance sheet strengthening. Banks improved provisioning, pursued recoveries and write-offs, raised capital and placed a sharper focus on asset quality. The movement towards more transparent, better-provisioned and diversified balance sheets has been a vital part of the resilience journey.

Stronger supervision and prudential discipline The Reserve Bank’s supervisory approach has evolved from point-in-time entity-level compliance to a more holistic, risk-based and forward-looking assessment. It covers governance, assurance functions, conduct, business models, technology risk, and cyber resilience.

A key element has been deeper engagement with Boards and senior management to identify the root causes of deficiencies, ensuring that issues are addressed at their source. The supervisory toolkit has been strengthened with off-site surveillance, stress testing, vulnerability assessments, and micro-data analytics. Modern supervision is not merely about checking compliance; it is about asking whether risks are understood and priced correctly and whether control functions have sufficient stature.

Calibrated and Adaptive Regulation Modern financial intermediation no longer fits neatly within traditional institutional boundaries. Credit, payments, and underwriting may involve banks, NBFCs, fintech entities, and third-party technology partners, making the system more interconnected. The regulatory response must be both entity-aware and activity-aware.

This approach is reflected in measures such as scale-based regulation for NBFCs and digital lending guidelines. During Covid-19, relief measures were designed to provide timely support while retaining a path back to normal prudential treatment through sunset clauses. RBI’s initiatives endeavour to protect customers without stifling innovation and to support inclusion while ensuring responsible conduct. Resilience by design means regulation by continuous review—rules must be stable but adaptive enough to remain relevant as markets evolve.

Resilience within banks Resilience has to be embedded inside banks. It must be visible in how banks originate assets, price risk, manage liabilities, and govern technology. A significant change in recent years has been the shift in portfolio behaviour away from large, lumpy corporate exposures toward more granular portfolios, including retail and MSME segments with clearer risk assessment.

This bank-level transformation matters because durability depends on internal behaviour. Resilience is built through everyday decisions: what is financed, how exceptions are approved, how early warnings are acted upon, and how accountability is enforced.

The next tests: complexity and uncertainty The next phase of banking resilience will be less about addressing known stress and more about managing complexity and uncertainty. Shocks can arise from varied sources: pandemics, geopolitical tensions, cyber incidents or sudden shifts in market sentiment. Banks must be made adaptable to risks whose timing and form are difficult to predict.

Technology can make banking faster, but it does not automatically make it wiser. AI, cyber risk, third-party dependencies, and climate-related risks will require ongoing attention from both banks and supervisors.

Conclusion Banking resilience is not a fixed achievement; it is a continuing institutional project. It is built through discipline across the balance sheet, transparent recognition of stress, calibrated regulation, and responsible conduct within banks. Strong banks require capital and technology, but they also require judgment, governance, accountability and institutions that learn. Resilience is not only about withstanding the last shock, but about building the capacity to respond well to the next one.

Thank you. Jai Hind.

State of the Economy

Introduction Geopolitical tensions and trade disruptions continue to test the global economy's resilience, with extended supply-side pressures leading to a sustained rise in commodity prices and inflationary expectations until early June. In its latest report, the World Bank downgraded global GDP growth projections while raising its inflation projections due to the West Asia conflict. However, the signing of an interim peace deal between the US and Iran in late June has provided a vital opening for normalisation.

The Indian economy has shown notable strength, with GDP growth in Q4:2025-26 reaching 7.8 per cent, driven primarily by private consumption and fixed investment. High-frequency indicators suggest this momentum has sustained into May 2026, supported by resilient domestic demand and strengthening industrial growth in the manufacturing sector. Headline CPI inflation in May 2026 increased to 3.9 per cent from 3.5 per cent in the previous month, reflecting broad-based increases across food, fuel, and core components. In its June 2026 review, the Monetary Policy Committee (MPC) unanimously decided to keep the policy repo rate unchanged at 5.25 per cent while maintaining a "neutral" stance as it awaits further clarity on global conflicts and monsoon risks.

Global Section The World Bank projects a slowdown in global growth for 2026, with a recovery expected in 2027. While risks remain skewed to the downside, the wider adoption of Artificial Intelligence (AI) and productivity reforms may support medium-term growth. Global Purchasing Managers’ Index (PMI) data showed widespread moderation in May, though the manufacturing sector outperformed services for the third consecutive month.

Commodity prices witnessed some softening in May as Brent crude oil prices declined from April's elevated levels, eventually correcting to below US$ 80 following the West Asia peace deal announcement. Headline inflation generally edged up across major advanced economies (AEs) and emerging market and developing economies (EMDEs) in May. Central banks have adopted cautious stances; while the Euro area and Japan pivoted toward rate hikes, the US and UK held rates unchanged.

Domestic Developments India's annual real GDP growth accelerated to 7.7 per cent for 2025-26, up from 7.1 per cent the previous year.

• Aggregate Demand: Robust private consumption and double-digit expansion in fixed investment supported growth. High-frequency indicators for May show continued resilience, with double-digit growth in E-way bills and electricity demand, the latter driven by a severe heatwave. Urban demand remained strong, reflected in accelerated passenger vehicle sales and domestic air passenger traffic. Conversely, rural demand showed some moderation in retail automobile sales.
• Government Finances: The Central Government’s gross fiscal deficit (GFD) for 2025-26 stood at 4.4 per cent of GDP, lower than both the previous year and revised estimates. State governments, however, experienced some slippages, with a consolidated GFD-to-GSDP ratio of 3.3 per cent.
• Trade and Supply: The merchandise trade deficit widened year-on-year in May 2026 due to higher crude oil prices, even as exports reached their highest level in recent years at US$ 45.2 billion. On the supply side, real gross value added (GVA) grew by 7.9 per cent in 2025-26, with industry and services both growing at 9.0 per cent. Foodgrains production reached a record 376.6 million tonnes, though the south-west monsoon is forecast to be below normal at 90 per cent of the long period average.

Inflation CPI headline inflation inched up to 3.9 per cent in May 2026, driven by broad-based increases. Food inflation saw a sequential pick-up across most sub-classes, and fuel inflation rose due to adjustments in retail prices for petrol, diesel, and CNG. Despite these increases, Indian households continue to pay some of the lowest cooking gas prices globally due to government and OMC absorption of costs. Wholesale Price Index (WPI) inflation rose to 9.7 per cent in May, its highest level in the new base series since April 2024.

Financial Conditions Surplus liquidity in the banking system moderated in May and June due to increased currency in circulation and higher government cash balances. G-sec yields softened following measures by the Reserve Bank and Government to attract foreign capital, including tax exemptions for foreign portfolio investors (FPIs). Bank credit continued to record double-digit growth (17.7 per cent y-o-y as of May 31), outpacing deposit growth.

On the external front, net FDI remained strong in April 2026 at US$ 6.6 billion, significantly higher than the US$ 1.6 billion recorded a year ago. While FPIs initially recorded net outflows, flows turned positive in mid-June following supportive policy measures. India’s foreign exchange reserves remain comfortable at US$ 682.3 billion, providing cover for over 10 months of imports.

Conclusion The global economic outlook remains fragile, and any breakdown in the recent US-Iran peace agreement could reignite risks to inflation, investment, and food security. India enters this period of turbulence with strong fundamentals, including high growth, anchored inflation expectations, and substantial foreign exchange buffers. However, the domestic outlook remains subject to risks from an adverse south-west monsoon.