RBI does well to hold rates, shift focus to foreign capital

📌 Summary:

• Context: The RBI Monetary Policy Committee's (MPC) June meeting came amid a tough backdrop — building inflation, capital outflows, a pressured rupee, and uncertain growth momentum
• Core argument: The MPC kept rates unchanged at 5.25% and retained a neutral stance — rightly, given West Asia uncertainty a wait-and-watch approach is warranted
• Data/causal chain: April retail inflation 3.5%, but pump prices rose in May; second-round effects of higher input costs are coming; RBI raised its inflation forecast to 5.1% (from 4.6%); subnormal monsoon and El Niño add food-inflation risk; GDP growth projection cut to 6.6% (from 6.9%)
• Foreign-capital measures: Centre removed capital-gains tax on FII investment in govt bonds and withholding tax on their interest; RBI widened securities under the Fully Accessible Route; concessional forex swap for ECBs and hedging-cost facility for FCNR(B) deposits
• India's vulnerability: FIIs pulled $28.6 billion from equities this calendar year; net FDI was just $7.65 billion in 2025-26 — making foreign-capital inflows essential
• Assessment: The editorial calls these "steps in the right direction"; notes possible impact on bond yields

🎯 UPSC Relevance: GS3 Economy — monetary policy, inflation-growth balance, external sector, capital flows, rupee management

📝 Prelims Facts:

• MPC held the repo/policy rate at 5.25%; stance: neutral
• RBI inflation forecast: 5.1%; GDP growth projection: 6.6%
• FAR = Fully Accessible Route (specified govt securities open to foreign investors)
• 2025-26 net FDI: $7.65 billion

🔑 Key Term: Neutral stance — a monetary-policy stance that keeps the option open to either raise or cut rates depending on incoming data