More Stories

Informist, Friday, Jun. 6, 2025

 

MUMBAI - Following are the top 10 announcements by Reserve Bank of India Governor Sanjay Malhotra on Friday in his address at the conclusion of the Monetary Policy Committee's second bi-monthly meeting for 2025-26 (Apr-Mar):

 

INTEREST RATES

The Reserve Bank of India's Monetary Policy Committee Friday unexpectedly lowered the policy repo rate by 50 basis points to 5.50%. Consequently, the standing deposit facility rate under the liquidity adjustment facility now stands adjusted to 5.25% and the marginal standing facility rate at 5.75%. 

 

CASH RESERVE RATIO CUT

The Reserve Bank of India cut the cash reserve ratio by 100 basis points to 3% of banks' net, demand and time liabilites. This reduction will be carried out in four equal tranches of 25 bps each with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1, and Nov. 29. This cut in CRR is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system. In December, the regulator had lowered the cash reserve ratio by 50 bps to 4.00% of net, demand and time liabilities in two equal tranches, infusing INR 1.16 trillion of liquidity into the system. The Reserve Bank remains committed to provide sufficient liquidity to the banking system.

 

POLICY STANCE

The RBI's Monetary Policy Committee changed the policy stance to 'neutral' from 'accommodative'. From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth-inflation balance. The fast-changing global economic situation too necessitates continuous monitoring and assessment of the evolving macroeconomic outlook.

 

GROWTH

The central bank retained its GDP growth projection of 6.5% for 2025-26 (Apr-Mar). The central bank also retained its growth estimates for each of the four quarters of the current fiscal year. The quarterly break-up of the RBI's latest growth forecasts is as follows: 6.5% for Apr-Jun, 6.7% for Jul-Sept, 6.6% for Oct-Dec, and 6.3% for Jan-Mar.

 

INFLATION

India's headline CPI inflation fell to a 69-month low of 3.16% in April because of a decline in food prices and the statistical effect of a high base. The last time inflation was lower than April's print was in July 2019. This was the sixth month in a row that CPI inflation had declined, and also the third consecutive month when it had stayed below RBI's medium-term target of 4%. CPI inflation was 3.34% in March and 4.83% in April 2024.

The quarterly break-up of the central bank's latest inflation forecasts is as follows: 2.9% for Apr-Jun, 3.4% for Jul-Sept, 3.9% for Oct-Dec, and 4.4% for Jan-Mar. It had previously forecast inflation in the second quarter of FY26 to average 3.9% and the third quarter at 3.8%.  

 

LIQUIDITY

A total amount of INR 9.5 trillion of durable liquidity was injected into the banking system since January. As a result, after remaining in deficit since mid-December, liquidity conditions transitioned to surplus at the end of March. This is also evident from the tepid response to daily variable repo rate auctions and high standing deposit facility balances. The average daily balance during Apr-May amounted to INR 2 trillion. 

 

Reflecting the improvement in liquidity conditions, the weighted average call rate traded at the lower end of the LAF corridor since the last policy. The comfortable liquidity surplus in the banking system has further reinforced transmission of policy repo rate cuts to short term rates. 

 

FINANCIAL STABILITY

The system-level financial parameters of scheduled commercial banks continue to be robust. The asset quality parameters, liquidity buffers and profitability parameters have shown further improvement. Credit deposit ratio for the banking system at the end of December 2024 was at 81.84%, broadly similar to a year ago. Similarly, the system-level parameters of NBFCs too are sound with comfortable capital position and improved GNPA ratios.

 

The stress witnessed earlier in retail segments like unsecured personal loans and credit card receivables portfolio has abated, while the stress in micro-finance segment is persisting. Banks and NBFCs active in these segments are already recalibrating their business models, strengthening their credit underwriting practices and stepping up their collection efforts to avoid any excessive build-up of risks on this front in future.

 

EXTERNAL SECTOR

Furthermore, despite rising geopolitical uncertainties and trade tensions, India's merchandise trade remained robust in April 2025. As imports grew faster than exports, trade deficit, however, widened during the month. Going forward, net services and remittance receipts are likely to remain in surplus, counter-balancing the rise in trade deficit. The CAD for FY26 is expected to remain well within the sustainable level. Net foreign direct investment too moderated. It is germane to point out that this moderation is on account of a rise in repatriation and net outward FDI while gross FDI actually increased by 14%.

 

High gross FDI indicates that India continues to remain an attractive investment destination. External commercial borrowings and non-resident deposits, on the other hand, witnessed higher net inflows compared to the previous year. As on May 30, 2025, India's foreign exchange reserves stood at US$ 691.5 billion. These are sufficient to fund more than 11 months of goods imports and about 96% of external debt outstanding. Overall, India's external sector remains resilient as key external sector vulnerability indicators continue to improve. The central bank remain confident of meeting our external financing requirements

 

INDIAN ECONOMY

On both inflation and growth fronts, the Indian economy is progressing well and broadly on expected lines. Strong macroeconomic fundamentals and benign inflation outlook provide space to monetary policy to support growth, while remaining consistent with the goal of price stability. As global environment remains uncertain, it has become even more important to focus on domestic growth amidst sustained price stability. Accordingly, today's monetary policy actions should be seen as a step towards propelling growth to a higher aspirational trajectory.

 

POLICY UNCERTAINTY

Trade policy uncertainty, however, continues to weigh on merchandise exports prospects, while conclusion of free trade agreement with the UK and with other countries should provide a fillip to trade in goods and services. Spillovers emanating from protracted geopolitical tensions, and global trade and weather-related uncertainties pose downside risks to growth. 

 

End

 

Compiled by Vaishali Tyagi

Filed by Vandana Hingorani

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.