The RBI delivered a policy rooted in the Tinbergen principle, clearly separating instruments across objectives.
FinTech BizNews Service
Mumbai, 5 June 2026: 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 on 5 June 2026:
https://fintechbiznews.com/govtregulators/fii-investments-in-g-secs-exempted-from-income-tax
https://fintechbiznews.com/govtregulators/repo-rate-retained-525
Here are the voices of the leading MFs-AMCs on the RBI MPC’s decisions, announced today:
Kaustubh Gupta, CIO – Fixed Income, Aditya Birla Sun Life AMC:
“The RBI delivered a policy rooted in the Tinbergen principle, clearly separating instruments across objectives. While the MPC remained focused on price stability by keeping the repo rate unchanged, the RBI complemented this with measures aimed at boosting capital inflows. The expansion of the Fully Accessible Route (FAR) to include new 15-, 30- and 40-year G-Secs, along with the removal of FPI investment restrictions under the General Route, should enhance foreign participation in government securities and support the government borrowing programme. From a fixed income market perspective, the widening of the investable universe and easing of participation constraints should improve demand for longer-duration G-Secs, deepen market liquidity and support a more stable foreign investor presence in India's bond market over time. Alongside the liberalisation of investment norms for NRIs, OCIs and other overseas individuals, the measures strengthen India's capital account at a time when external financing conditions remain dynamic, while also supporting rupee stability.”
Deepak Agrawal, CIO-Debt, Kotak Mahindra AMC:
RBI unanimously decided to hold policy repo rate at 5.25% and stance as neutral. RBI has revised inflation projection for FY27 upwards to 5.1% from 4.6% while growth for FY27 has been revised downwards at 6.6% from 6.9%.
The change in projections is largely attributed to rise in energy costs, expected second order effects and geopolitical uncertainty due to West Asia war. However, inflation projections continue to remain in within the band of 4%+-2% as per inflation targeting framework
RBI will continue to remain data dependant.
RBI has also announced number of forex and capital flow measures to support balance of payment like increase in Fully Accessible Route (FAR) securities universe, increase in investment limits for NRIs and OCIs in listed equities and hedging support to ECBs and FCNR deposits till Sep 30, 2026. Further, Govt of India gave tax exemptions for foreign bond investors in G-Sec.
Markets continue to price in significant rate hikes by RBI over next 12-15 months. 10 yr Gsec yields have improved marginally post RBI policy and is trading around 6.96% levels.
Sachin Sawrikar, Managing Partner, Artha Bharat Investment Managers IFSC LLP:
"The MPC held rates, as expected. The backdrop has become genuinely complex. Wholesale inflation is rising, the rupee has weakened, monsoon risks are real, and energy markets remain under structural stress. A neutral stance today does not imply a neutral trajectory. If West Asia does not stabilise and crude stays elevated, a rate hike in H2 FY27 is no longer a tail risk. It is a scenario markets may not be fully pricing in. India’s fundamentals are stronger than in prior shocks. But resilience is not immunity. The vote was never in question. The path forward is."
Suyash Choudhary, CIO – Fixed Income, Bandhan AMC:
The RBI / MPC kept policy rates and stance unchanged while flagging both upside risks to inflation and downside risks to growth. The uncertainty in assessment is understandable and expected, given the uncertainties from the West Asia conflict, as well as the evolving forecasts with respect to the south-west monsoon. The Governor in his statement was also quite clear in acknowledging that the risks of higher inflation have amplified and that the MPC “will continue to remain data-dependent and closely monitor the developments, including supply side pressures getting embedded in the general price level and inflation expectations.”. This also helps make another point: some rate hikes are likely going to be prudent given that average inflation will almost decidedly set higher. The quantum and timing are somewhat of a matter of judgement. The judgement taken today was to acknowledge evolving risks and standing by as needed.
The policy rate decision to us, however, was almost a matter of indifference for the time being. To elaborate, the view is that some rate hikes will be needed but only to adjust to the higher inflation outlook. Specifically, there is no case to us for using this as any sort of ‘currency defence’. Thus, the expectation is of a gradual 75 bps odd hike over a period of time. So long as RBI/MPC communication is clear in not letting market expectation overshoot the trajectory, it really doesn’t matter to the current level of market yields whether the repo rate is somewhat higher.
Instead, our entire market view framework has been around the funding stress stemming from the balance of payment (BoP) deficit that has been in play now for several quarters. In turn we had tracked this to three likely sources: 1> higher global rates 2> competing global capital allocation themes like AI 3> most recently, the West Asia conflict. The implication from the BoP pressure could be best summarised in the form of the “impossible trinity” framework which illustrates the tension between the external account, currency, and monetary policy. Thus, RBI’s policy rate setting basis domestic growth-inflation trade-off was no longer serving as anchor for market rates, even accounting for higher global rate volatility. Hence, if some stability could be reattained on the BoP, most market rates would once again look quite attractive irrespective of some likely tweaks ahead in the repo rate basis the evolving inflation outlook.
Working the Source
The set of announcements by RBI and government today make a significant downpayment towards alleviating stress on our BoP. The government has notified that foreign portfolio investor (FPI) investments in government securities will be exempt from income tax on any interest or capital gain. This is effective 1st April 2026. On its part the RBI has also unveiled meaningful measures including 1> expanding list of FAR securities to include new issuances of 15-, 30-, and 40-year government bonds. 2> concessional forex swap till 30th September 2026 to incentivize ECB by PSUs. 3> a similar facility for bearing the full hedging cost till 30th September 2026 to AD banks for raising fresh 3–5-year FCNR (B) deposits 4> restore the time for realisation of export proceeds to nine months.
Taken together, these are meaningful steps and stronger than market expectations. These should serve to put a floor on the BoP narrative, and one will look forward to some meaningful capital flows in the months ahead. This will also help to directly alleviate funding stress for banks. It will also make more likely inclusion of Indian government bonds in global indices. Equally important to us is the signalling effect: government and RBI are now actively working towards shoring up the BoP.
Given this, bond valuations look attractive to us, even after accounting for the fall in yields today. As discussed above, valuations weren’t being derived from fears of likely repo rate hikes but were more reflective of the BoP pressures. We had already turned overweight duration (refer: Positioning For The Binary: A Bond and Macro Update) and are now much more inclined to continue to carry this. If the tailwind created today were to be further augmented by cessation of war and some fatigue to the AI story, then the period of the bond benign environment can stretch for much further than currently envisaged. As always, however, this represents our view as of date and this may change going forward.
Vaibhav Chugh, CEO, Abakkus Mutual Fun:d
‘As anticipated, today’s MPC was more about direction than rates. While policy rates remain unchanged, the RBI has taken clear and measured steps to attract foreign capital and deepen the bond market by expanding access to longer-term Government Securities and easing FPI limits. Along with supportive tax measures, this can help channel flow into government borrowing and strengthen overall capital inflows. These actions can be supportive for both fixed income and equities, boosting liquidity, helping keep yields stable, and easing overall financing conditions. At the same time, the macro backdrop remains watchful, with supply chain disruptions from the West Asia conflict, recent fuel price hikes, and concerns around a weak monsoon continuing to pose risks. Overall, this is a balanced and forward-looking policy stance, supportive for markets while maintaining macro stability. For markets, the message is clear- stability remains the priority, with a balanced and careful approach in more uncertain environment.’
Anil Bamboli, Head, Fixed Income of HDFC Asset Management Company Limited (HDFC AMC):
“The Monetary Policy kept the policy repo rate unchanged and maintained a neutral stance. It also revised its FY27 projections, lowering the growth outlook while increasing the inflation estimate.
In view of prevailing elevated global uncertainty, we believe, policy reflects a prudent, calibrated and constructive approach. Going into the policy, external sector and INR challenges were more imperative to address. RBI announced a comprehensive set of forex and capital flow measures aimed at bolstering the balance of payments and mitigating volatility. Initiatives such as expanding the Fully Accessible Route (FAR) for G-secs, restoring export realisation timelines, easing FPI limits, relaxing equity investments for non-resident individuals, incentivizing ECB inflows through concessional forex swaps, and supporting FCNR(B) deposits by covering hedging cost - are geared towards attracting stable foreign capital and should aid in reinforcing external stability. This was also complimented by government removing tax on FPI interest and capital gain on sovereign bonds.
We believe that these measures should address multiple concerns in one go – improve capital flows, stabilise currency, shore up forex reserves, improve system liquidity, moderate credit to deposit ratio for banks, and result in money market and corporate bond yields drifting lower. In view of the above, Indian fixed income outlook appears favourably placed from a medium to long term perspective.”
