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Below the Quote on RBI MPC by Archit Doshi, Senior Vice President at PL (Prabhudas Lilladher) AMC

The Monetary Policy Committee (MPC) voted unanimously (6-0) to maintain the repo rate at 5.25% with a neutral but noticeably more cautious stance. Consequently, the Standing Deposit Facility (SDF) remains at 5.00%, while the Marginal Standing Facility (MSF) and Bank Rate hold at 5.50%. This hawkish pause comes despite a deteriorating macro backdrop: the RBI slashed the FY27 GDP growth forecast to 6.6% (from 6.9%) and hiked the FY27 CPI projection to 5.1% (from 4.6%). Policymakers are deeply concerned about the West Asia conflict driving up energy prices, persistent global supply constraints, currency volatility, and El Niño risks. While the banking system entered this crisis robustly, inflation is expected to firm up near the upper tolerance limit in Q3. This suggests a defensive rate hike in the August meeting remains highly probable if secondary inflation risks materialize before supply shocks ease.

A primary policy focus was combating severe capital flight, highlighted by $13.7 billion in net FPI equity outflows this fiscal year up to June 2. To attract foreign capital and stabilize the Rupee, the RBI and government deployed aggressive interventions: exempting FIIs from sovereign bond capital gains tax, expanding the Fully Accessible Route (FAR) for 15, 30, and 40-year government bonds, and offering concessional forex swap facilities until September 30 for PSU external borrowings and AD banks raising 3-to-5-year FCNR(B) deposits. From a portfolio management perspective, this dictates a strategic pivot. The policy is distinctly positive for bond markets and well-capitalized Banks and NBFCs, which benefit from targeted hedging subsidies and systemic stability. Conversely, one should be underweight rate-sensitive sectors, which remain highly vulnerable to margin compression, higher inflation expectations, and the threat of the RBI reaching its tightening tipping point.

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