India’s central bank just pulled off a monetary policy balancing act. Keep rates where they are, but find other ways to stop the rupee from sliding further. On June 5, the Reserve Bank of India unanimously voted to hold its benchmark repo rate at 5.25% for the third consecutive meeting, while simultaneously unveiling a package of measures aimed at attracting foreign capital inflows to support the currency.
The decision reflects a central bank caught between competing pressures. Inflation is climbing, growth is slowing, and geopolitical chaos, particularly tensions involving Iran and broader West Asia instability, has sent energy prices soaring. Raising rates would defend the rupee but choke an already decelerating economy. Cutting them would be reckless with inflation running hot.
What the RBI actually did
The MPC voted unanimously to maintain its neutral policy stance, keeping the repo rate at 5.25%, the standing deposit facility (SDF) rate at 5.0%, and the marginal standing facility (MSF) and bank rate at 5.5%.
But the rate decision was almost secondary to the broader package. The RBI introduced tax exemptions for eligible foreign investors on interest income and capital gains from government securities. It also offered more favorable terms for foreign-currency deposits from non-resident Indians. And it rolled out subsidies on hedging costs for certain offshore borrowings.
