RBI: A monetray policy in sync with the times | Photo Credit: SHASHANK PARADE

While the market had well anticipated the repo rate and policy stance remaining unchanged in the monetary policy, the RBI’s business intelligence script will play a key role in guiding sectors to develop strategies to withstand geopolitical risks in trying times and sustain the growth trajectory.

The data-driven economic outlook projected in the monetary policy can be a critical input in shaping domestic and international market sentiment, even as rising energy prices, a subnormal south-west monsoon, and the El Niño effect could weigh on economic activity.

Despite heightened uncertainty and disruptions to trade routes and supply chains due to lingering conflict in West Asia, the economy is well-poised to grow, though slightly below the earlier estimate. The full impact, however, will depend on the duration of the conflict, the time required to normalize supply chains, and the capacity of various sectors to mitigate risks by drawing on their buffers and falling back on the business continuity framework.

Inflation dynamics

The shades of collateral risks can be better perceived from its future outlook on growth-inflation dynamics. Against the backdrop of 7.6 per cent GDP growth in FY26, the RBI has now revised its projection downward to 6.6 per cent, and average inflation could inch up to 5.1 per cent in FY27. Notwithstanding external sector risks, the RBI is confident it can contain inflation well within its glide path.

The services PMI for May is 59.6, up from 58.8 in April; the manufacturing PMI for May is 55, up slightly from 54.7 in April. Taken together with trends in high-frequency indicators, this data suggests that the RBI expects the pass-through impact of geopolitical risks to intensify over the remainder of FY27, depending on the crisis’s duration.

Liquidity assurance

Amid steady system liquidity since the last monetary policy and RBI’s continued assurance of adequate liquidity in the banking system to meet productive needs, the weighted average call rate (WACR) has fluctuated within the corridor of 5 per cent (SDF) to 5.5 per cent (MSF).

Overall credit growth was 15.4 per cent in FY26, up from 12.1 per cent in FY25, and broad-based bank credit growth stood at 16.2 per cent as of May 15, 2026, up from 9.8 per cent a year ago, providing comfort to stakeholders.

To shore up forex reserves, now at $682.3 billion, the RBI rolled out a package of measures to attract new forex inflows and reiterated that it will ensure an orderly, market-driven movement of the INR and keep a close watch on it.

It is a timely analytical view of the West Asia crisis, outlining how it is unfolding and how stakeholders should gear up to manage the risks. Besides the regular flow of credit, banks can take cues and explore opportunities such as ECLGS 5.0 and the enhanced scope of CGTMSE to reach out to stressed sectors.

It provides clear direction to regulated entities to augment foreign capital by exploring newly opened gateways to strengthen foreign exchange reserves. In the given uncertain state, the design and monetary policy architecture is a pragmatic, stimulating tool for stakeholders to better manage heightening geopolitical risks.

The writer is Adjunct Professor, Institute of Insurance and Risk Management (IIRM), Hyderabad. Views expressed personal

Published on June 7, 2026