Bankers hail RBI's cautious pause, capital flow measures amid global uncertainty

Mumbai, Jun 5 (PTI) Bankers on Friday welcomed the Reserve Bank of India’s decision to keep the repo rate unchanged at 5.25 per cent with a neutral stance, saying the move reflects a balanced and prudent approach amid geopolitical tensions in West Asia and elevated energy prices.

Lenders also welcomed measures announced by the central bank to attract foreign capital and deepen financial markets, including expansion of the universe of government securities under the Fully Accessible Route (FAR), relaxations in foreign portfolio investments and support for foreign currency inflows.

“The measures announced to attract foreign capital through FCNR (B) deposits, government securities, overseas borrowings, and equity investments are timely and comprehensive.

These steps should help enhance capital inflows, deepen bond markets, improve liquidity and provide support to the rupee,” said CS Setty, Chairman, State Bank of India & Indian Banks’ Association (IBA).

Bankers said the measures will improve liquidity and provide support to the rupee.

“Even as the economy demonstrates resilience, with growth projected at 6.6 per cent for FY27, a cautious stance is warranted given geopolitical tensions in West Asia and elevated energy prices,” Ajay Kumar Srivastava, managing director and chief executive officer of Indian Overseas Bank, said.

“By keeping rates steady, the RBI reinforces the sustainability of the ongoing recovery while ensuring predictability in borrowing costs, a welcome relief for both households and businesses.” On Friday, the central bank kept interest rates unchanged as it weighed the impact of rising energy prices and supply disruptions caused by the West Asia crisis.

The policy decision comes amid a three-month-long conflict in West Asia that has disrupted energy supplies, leading to a surge in crude oil prices and creating fiscal and inflationary pressures for import-dependent countries like India.

Announcing the second bi-monthly monetary policy for the current fiscal, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) has unanimously decided to retain the short-term lending rate or repo rate at 5.25 per cent with a neutral stance.

Karur Vysya Bank managing director and CEO Ramesh Babu said the RBI’s decision to keep the repo rate unchanged with a neutral stance ensures a predictable environment with room to adapt as global dynamics shift.

“Despite West Asia pressures on energy and trade routes, India’s financial stability and growth remain resilient,” Babu said, adding that the pause helps contain inflation, keeps borrowing costs stable and supports ease of doing business by protecting MSMEs and exporters from sudden credit shocks.

Among the foreign banks, PD Singh, CEO, India and South Asia, Standard Chartered Bank, said the announcement of a scheme to attract 3-5-year retail foreign currency term deposits could be a game changer as it would help attract foreign currency flows into the country while allowing banks to bolster deposit growth and meet client funding requirements.

“The MPC decision to maintain status quo on policy rates comes from a prudent stance by the regulator as it would like to wait and watch how the evolving West Asia scenario plays out in the coming time,” Singh said. PTI MSU AA BAL BAL