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Informist, Friday, Jun. 6, 2025

MUMBAI - Following is a compilation of stories on the Reserve Bank of India's monetary policy that was detailed on Friday:

SPECIAL STORIES

WRAP: MALHOTRA BETS ALMOST ALL OF RBI'S ARSENAL FOR 7-8% ASPIRATIONAL GROWTH

Reserve Bank of India Governor Sanjay Malhotra Friday surprised almost everyone by effectively emptying the central bank's policy arsenal, front-loading interest rate cuts and providing a massive liquidity boost, all in the hope that growth will accelerate to a much higher level than projected at present.

While detailing the outcome of the Monetary Policy Committee's meeting on Friday, Malhotra dished out one surprise after another – the repo rate cut was higher than most projections, the stance was changed unexpectedly, and the cash reserve ratio was lowered to a level previously seen only during the pandemic. All this sent markets into a tizzy.

When Malhotra announced the repo rate was being cut by a higher-than-anticipated 50 basis points to 5.50%, the 10-year gilt yield almost immediately fell 10 bps. Then Malhotra said the policy stance was changed to neutral from accommodative, after which the 10-year gilt yield jumped 10 bps to 6.20%, all within a span of just a few minutes.

Yields fell again, albeit by a lower extent, when Malhotra announced the cash reserve ratio was being cut by 100 bps to 3.00% in four tranches starting September. The 10-year yield ended the day at 6.24%, only slightly higher than 6.20% on Thursday.

No one had anticipated this. While a few economists had mentioned the possibility of a 50-bps repo rate cut, no one saw the stance change and CRR cut coming. Notably, this was second-biggest interest rate cut in India since the MPC was first constituted in 2016, topped only by the 75-bps cut at the start of the COVID-19 lockdown in March 2020. The rate cut was also not unanimous, with external member Saugata Bhattacharya voting for a 25-bps reduction instead.

Malhotra said the current growth-inflation dynamics call for not only continuing with the policy easing but also front-loading rate cuts to support growth, which remains below the central bank's aspiration of around 8% while inflation is seen durably aligned with its 4% target. The RBI lowered its CPI inflation forecast for the current financial year to 3.7% from 4.0%, while the growth projection was left unchanged at 6.5%, despite all the heavy artillery being used.

With the 50 bps rate cut on Friday, the MPC has lowered the repo rate by 100 bps in 2025. Malhotra said with 100 bps of cuts in quick succession and in the current circumstances, monetary policy is left with "very limited space to support growth". Hence, the committee changed the policy stance to neutral from accommodative, which was adopted just one meeting ago.

"Today's policy decision constitutes a major surprise," analysts at Nomura said in a report. "The combination of a 50 bps cut, a shift in stance to neutral and the CRR cut signals that the RBI's MPC believes the existing space for policy easing has been largely exhausted, and they will be in a wait-and-watch stance now, with policy transmission the key objective," Nomura said. "This suggests that, unless there are major economic surprises, the RBI will be on hold in August and beyond."

Malhotra has been focusing on transmission for some time now. After the April MPC meeting, the governor had said he would like policy transmission to happen as fast as possible. The central bank has also been providing liquidity to the banking system to help quicken this transmission.

In order to step up policy transmission, Malhotra Friday announced the cash reserve ratio would be cut by 100 bps to 3.0% of net demand and time liabilities in a staggered manner starting September. "The cut in CRR would release primary liquidity of about INR 2.5 lakh crore (INR 2.5 trillion) to the banking system by December," he said. "Besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market."

RBI's actions and commentary Friday imply that interest rates are unlikely to fall further in the near term. "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," Malhotra said. The change in stance keeps the window open for the RBI to raise rates, if the situation were to so warrant.

According to economists at QuantEco Research, the advance announcement of the CRR cut would iron out any uncertainty on liquidity, thereby improving visibility and pricing decisions for the money market. The increase in liquidity from the CRR cut will "further boost monetary policy transmission and obviate the need for any explicit reduction in the monetary policy rate," QuantEco said in a note.

Marking a departure from the RBI's regular practice, Malhotra spoke at length about IndusInd Bank, in which an apparent derivative accounting discrepancy turned out be 'suspected fraud'. Such episodes, he said, wouldn't be a bother if they were few and far between, and the managing director's resignation should be "good enough".

In another departure from policy statements of the past, the governor did not announce any regulatory measures and the Resolution of the Monetary Policy Committee was not accompanied by the Statement on Developmental and Regulatory Policies.

Most economists now expect the MPC to leave the repo rate unchanged at 5.50% over at least the next two meetings in August and October. With the series of unexpected policy decisions on Friday, Malhotra and the RBI have tried to provide certainty for the near future. Essentially, the RBI and MPC have also said their job here is done for now. 

Reported by Shubham Rana

Edited by Avishek Dutta

FOCUS: RBI STOPS MUSIC AFTER JUMBO RATE CUT, PARTY OVER FOR BOND MARKET

The Reserve Bank of India's surprise on rates and liquidity are seen detrimental to government bonds, an astonishing sentiment after a larger than expected 50-basis-point rate cut. However, traders see little reason to buy gilts with the central bank openly saying there is not much more for it to do to boost growth, implying there is little chance of further rate cuts.

The Monetary Policy Committee's decision Friday initially brought cheer to the market as it delivered an outsize rate cut, which was on the radar but only just. Rate-sensitive yields of bonds maturing up to five years fell immediately, and they will remain well bid with the monetary authority not only cutting the policy repo rate but also the cash reserve ratio by 100 bps.

Instead, it was the panel's decision to change its stance to 'neutral' from 'accommodative' that stung the majority of the bond market – an even more unexpected development than the one on rates, and also a negative one. With the softer policy stance reversing after only a single meeting, hopes the terminal policy rate would be 5.25% or 5.00% petered out, and traders now see the policy repo rate at the current 5.50% for an extended period.

"The RBI has front-loaded rate cuts, and we do not anticipate further cuts in the next 3-6 months. Returning to a neutral stance was unexpected and possibly premature in our view," Axis Mutual Fund wrote in a note after the policy. The fund sees the 10-year benchmark gilt in a 6.00-6.40% band, a slightly wider range than the market consensus of 6.10-6.35%.

RBI Governor Sanjay Malhotra only reinforced the view that the bar for further rate cuts was very high. First, he said the MPC was left with very limited space to support growth after frontloading rate cuts. Speaking at the post-policy press conference, Malhotra delivered another whammy, saying that monetary policy had done its job on the growth front and now it was important for other drivers of the economy to kick in.

With this, traders said the 10-year 6.33%, 2035 bond hitting a 6.11% yield – the four-year low the benchmark had hit earlier in the day after the rate cut announcement – will be a tall task. Incentivising traders will be even more difficult as trading desks burnt their fingers Friday with the volatility in the market, due to the whiplash from the announcements of the repo rate cut, stance change, and cash reserve ratio cut, in that order. Traders have called the bond "rally" closed after the torrid pace at which they have made money since March, with the 10-year gilt yield down nearly 50 bps at its lows Friday.

"On its own, the yield is not moving to 6% now. The issue is with the stance: the RBI shut the door to further easing within two months," said Vijay Sharma, senior executive vice-president at PNB Gilts Ltd. "If there are no OMOs, or a crash-type event in the global economy, both of which look unlikely, we have seen the best of gilt yields."

LIGHT THROUGH THE CRACK

Bond yields had been sliding due to the anticipation over further monetary policy easing as well as favourable demand-supply conditions. The RBI's government bond purchases in 2025, at over INR 5.20 trillion, dwarf the market's own. Expectations of further such buys had dwindled heading into the MPC, and the RBI's cash reserve ratio cut of 25 bps each starting September all but ensures that it will stay out of adding liquidity in the near-term, dealers said.

Regardless, the MPC could still cut rates by another 25 bps later in 2025-26 (Apr-Mar) if GDP growth trends suggest it would miss the year's forecast of 6.5%, dealers said. Moreover, the current real interest rate – the repo rate net of expected inflation – is at 1.8%. This is near the top of the range given by the RBI last year for a "neutral" policy rate that maximises growth while keeping inflation in check.

"The market's read of no further rate cuts seems a bit hasty. While a policy rate cut in August now seems off the table, evolving growth-inflation data could still open room for a future 25 bps reduction," said Nitin Agarwal, head of trading at ANZ Bank India.

Traders also conjectured Malhotra's strong statement on rates was keeping in mind the shrinking interest rate differential between US and India government bonds. The RBI did not want to make Indian bonds more unfavourable for foreign investors to hold after the rate cut, and the rate guidance was probably seen necessary to assuage these concerns, dealers said. The spread of the 10-year US Treasury yield over the 10-year benchmark gilt yield is at two-decade lows, which has led to consistent gilt sales by foreign portfolio investors. Should the US Federal Reserve also cut interest rates later in 2025 and the spread widen, the MPC could take the opportunity to cut rates in December or February, dealers said.

In the near-term, banks flush with liquidity and having to park money at the Standing Deposit Facility at 5.25%, look to invest in gilts until there is demand for credit. Some of this credit growth would have to be generated in line with the RBI's push, and this is likely to dampen incremental demand for bonds sooner rather than later, dealers said. With the RBI seen pausing its open market operations, demand from institutional investors and banks between one weekly gilt auction and the next will be closely gauged for the direction of gilt yields maturing in 10 years or more.

"We will be forced to lend, because there are no ways to park that cash except in the market," a senior treasury official at a state-owned bank said. "I think this phase of the rally is over, but the (10-year) yield will not go beyond 6.30% because the lower funding rate will make it quite attractive to buy at that point of time. And the RBI can always come and deliver some more good news on liquidity."

A TALE OF TWO SEGMENTS?

The bulk of the disappointment is applicable to the 10-year benchmark and bonds of longer tenures. Demand for short-term bonds and Treasury bills has been immense as traders saw minimal risk in this segment, and the sentiment has redoubled after the rate cut Friday. After these announcements, Nomura increased its conviction on going long on the five-year benchmark 6.75%, 2029 gilt with a target of 5.50% yield from the current 5.82%. It expects the terminal rate will be 5.00%, a view that is much more optimistic than what the market expects.

Moreover, the RBI has already announced a cash reserve ratio cut that will add over INR 2.5 trillion over nearly four months starting September. That cushion should help give banks more confidence in pushing credit during the festival season. At the same time, it will allow the RBI room to deliver its dollar buy spot-sell forward positions which are likely to drain rupee liquidity, dealers said.

"With Friday's decision, short- to medium-term bonds are expected to perform well, supported by a substantial liquidity surplus following a 100 bps cut in the cash reserve ratio," Siddharth Chaudhary, head of fixed income, Bajaj Finserv Asset Management Co., said. "However, as market expectations approach the terminal rate, profit-booking is evident in longer-term bonds."

Others see it as more of a safe bet amid broader market turmoil rather than a moneymaking opportunity. The spread of the 10-year benchmark over the five-year gilt yield may widen by another 5-10 bps from the 42 bps Friday, but further outperformance seems unlikely as levels seem lucrative to take profit.

Since the RBI has placed its cards on the table, the bond market will begin to discount Friday's announcements sooner rather than later, dealers said. Malhotra's mere mention of variable rate reverse repo operations also spooked some traders, even as the governor said overnight rates should remain at the lower end of the policy corridor of 5.25% if the tool was not deployed.

"Given the fast-evolving policy landscape and the governor's proactive demeanour, we expect preference for short-term bonds as the upside risks to longer-term bond yields will also be magnified, whenever the cycle turns," Agarwal of ANZ Bank said.

With the return of the 'neutral' policy stance, traders fear quick policy steps that could flip the easing cycle on its head. With aggressive rate actions when inflation is seen only 30 bps below the 4% medium-term target in FY26, an inflation surprise on the upside could prompt a "trigger-happy" governor and MPC to start hardening rates in the overnight market.  End

Reported by Aaryan Khanna

Edited by Ashish Shirke

FOCUS: RBI LIQUIDITY BONANZA TO FURTHER SHRINK FX FWD BOOK, PULL DOWN RUPEE

The Reserve Bank of India's bumper liquidity infusion in the form of a 100-basis-point cut in the Cash Reserve Ratio is expected to significantly help the central bank trim its forward book but it will also pull down the Indian rupee, market participants said.

Along with a higher-than-expected 50-bps cut in the repo rate to 5.50%, the RBI Friday reduced the CRR by 100 bps to 3% of banks' net demand and time liabilities. The CRR reduction, to be effected in four tranches of 25 bps each, is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system by December.

Market participants said this sustained liquidity support will allow the central bank to trim its forward book at a much quicker pace. "The sharp drop in CRR could help offset the liquidity tightness likely from an unwinding of the RBI's short positions in the FX forward book," Kotak Mahindra Bank said in a report.

A large part of the RBI's intervention in the foreign exchange market last year was through buy spot-sell forward swaps. The unwinding of these will mean the RBI has to sell forward dollars, which will drain rupee liquidity. This potential liquidity drain is no longer a concern due to the sharp cut in the CRR.

To be sure, the RBI's substantial short forward book has already been declining since March. From a record high of $88.76 billion, the RBI's net outstanding sales of dollar/rupee forward contracts fell to $72.58 billion at the end of April. Of the total, $14.73 billion worth of short forward positions are set to mature in the next three months. The RBI's forward book had ballooned earlier this year as it neutralised its heavy dollar sales in the spot market.

While the RBI may trim its forward book, currency market participants expect the central bank to simultaneously purchase dollars in the spot market to either pay for the maturing short positions or to replenish its foreign exchange reserves if these are used for the forward deliveries. This, they said, would exert pressure on the Indian currency. 

"The odds of rupee weakening or at least remaining weaker than rest of its peers look more likely to me than not, after today. Because that money has to come from somewhere, right? And inflows are not going to come back soon a big way. I think RBI will have to buy (dollars) from whatever is available in the market," said Dhiraj Nim, FX strategist at ANZ Bank India. "That $14 billion number is lurking, but removing that entirely from spot reserves will not be palatable, so they (RBI) will try to mitigate that." 

In fact, while the dollar is as weakening globally, the rupee has been underperforming against its peers, as the central bank sporadically kept buying dollars in the market. If this continues, market participants expect the rupee to depreciate to 86.50-87.00 a dollar in the next three to six months. In May, the rupee was the worst performing currency against Asian units as it fell 1.3% against the greenback.

"We think the RBI will be focused on replenishing its FX reserves and is keen to allow the forward book to run off, benefiting from the softer dollar environment at present," Barclays said in a report. "We also continue to believe that the RBI will want to maintain currency competitiveness and would want to avoid any richening of the rupee after the recent decline in the NEER (nominal effective exchange rate)." 

RBI Governor Sanjay Malhotra echoed a similar sentiment at the post-policy press conference Friday, saying that the central bank was not "concerned" about the impact of its short forward book on foreign exchange reserves, adding that if there are opportunities, it will build its foreign exchange reserves.

India's foreign exchange reserves were $691.5 billion on May 30, down from $692.72 billion from a week earlier. FX reserves had reached a record high of $704 billion at the end of September. These fell to a low of $623.98 billion on Jan. 17 due to the RBI's intervention through sales of dollars.

Market participants said the central bank may not want to dent its foreign exchange reserves at a time of increasing and likely prolonged global uncertainty due to US President Donald Trump's unpredictable policies on tariff.

Volatile foreign portfolio inflows into India do not help the central bank's case either. So far in 2025, foreign portfolio investors have withdrawn $8.98 billion from the domestic markets on a net basis.

"We believe the RBI will continue to accumulate US dollar, with the recent evidence from the April FX forward book and FX reserve developments," Nomura said in a report. "As we highlighted, the April RBI FX forward book showed its net short position fell by $11.77 billion in the month, but spot FX reserves rose by $13.6 billion over the same period (after adjustments, it was $3.1 billion higher)."

While there is still scope for the central bank to draw down its huge forward book without hurting the rupee much, the chances for this seem to be few and far between.  

Reported by Pratiksha

Edited by Akul Nishant Akhoury

FOCUS: MARKET EYES NIFTY 50 LIFETIME HIGH POST SURPRISE REPO RATE, CRR CUTS

The surprise 50 basis point repo rate cut and 100 bps reduction in cash reserve ratio are likely to push the Nifty 50 to a fresh lifetime high, market participants said. The RBI bonanza will help push growth in the Indian economy, which had slowed down tangibly in 2024-25 (Apr-Mar), they said. 

The benchmark index jumped 1% after the RBI's announcement. The Nifty 50 Friday ended at 25003.05, just 5% below its lifetime high of 26277.35 points touched in September last year. Though analysts are divided over when the Nifty 50 will hit the lifetime high, they said this appears to be a real possibility now. "At an optimistic level, after discounting all the factors and with this kind of a policy and the macro tailwinds, I think this market is now set for a new high before Diwali (October)," Dharmesh Kant, head of equity research at Cholamandalam Securities, said.

The RBI Friday took the market by surprise by announcing a 50 bps cut in repo rate and a 100 bps reduction in CRR. The market was expecting the central bank to cut the policy repo rate by 25 bps. With this, the RBI has cut the repo rate by 100 bps in 2025 to 5.50%. The Monetary Policy Committee of the RBI, however, changed its stance to "neutral" from "accommodative", suggesting all three possibilities – cut, hike and pause – are on the table. 

Analysts are positive that the measures announced by the RBI, along with above-normal monsoon, lower inflation, and the cut in personal income tax, will help push up GDP growth in 2025-26 (Apr-Mar). They are confident that India will grow in line with the RBI's forecast of 6.5% for FY26 and may even surpass it if the threat of tariffs eases. "Once that (tariff uncertainty) is clear, probably in August, you'll see a slight uptick in growth," Amit Kumar Gupta, founder of Fintrekk Capital, said. "We'll probably end up around 7% (GDP growth) for this financial year, if all goes well."

Analysts expect the latest measures to boost consumption in a major way and said sales of entry-level cars, two-wheelers, and real estate will rise as loans are set to get cheaper. "Automobiles will be directly impacted... consumer durables should see some activity... anything and everything to do with domestic individual, household consumption (is expected) to do better," Kant said.

Lower interest rates are also expected to boost credit growth with some hoping it would help growth in unsecured lending, supporting overall rise in consumption, even as banks' net interest margins are expected to fall in the coming quarters. State Bank of India Chairman C.S. Setty told CNBC-TV18 that the bank's credit growth could improve to around 13% in FY26 from its earlier guidance of 12% if the retail segment picks up "the way we expect now".

With the repo rate cut to 5.50%, lower taxes, and the expectation of a good monsoon likely resulting in better growth in the second half of the financial year, analysts are confident about an improvement in the earnings growth of companies. "(The) base effect will come into play now... we should see earnings growth of 13-14% in FY26 (for Nifty 50)," Sanjeev Hota, head of research at Mirae Asset Sharekhan, said. Fintrekk Capital's Gupta has a relatively conservative view and expects Nifty 50 earnings growth at 11-12% this financial year. In FY25, Nifty 50 earnings per share grew only 1%, Motilal Oswal Financial Services said in a report this week.

TARIFF RISKS

While analysts are hopeful domestic-oriented companies will do better this financial year, earnings of companies that depend on exports remain at risk. Due to this, earnings growth estimates for FY26 are still at risk of downgrades if the global growth outlook, especially that for the US, worsens due to high tariffs. "2025 will still be a difficult year for the market," Hota of Sharekhan said. "We don't know what may happen outside (globally), what negative surprises may come for the market."

Analysts said the market hasn't factored in a slowdown in global growth. Although the pause in reciprocal tariffs is in effect, the base tariff of 10% is still applicable and can affect global growth negatively, analysts said. Information technology companies are at the biggest risk as a large part of their business is from US clients, some of whom have already paused orders due to the uncertainty around tariffs, analysts said.

The flip-flops by US President Donald Trump on tariffs have left the world guessing over the future of global trade and growth. Barring the United Kingdom, no other country has signed trade agreements with the US after Trump paused tariffs in April. Moreover, there is a fear that the bill announced by Trump to cut taxes for US citizens will push up the already elevated levels of US debt.    

Some also worry that the RBI has done all it could to support growth. "There is no margin of error left (after 50 bps rate cut)... now support can only come if currency (rupee) appreciates. If your currency depreciates, what will you do then?" Kant said.

Analysts largely agree that the rate cuts in future will be less intense and dependent on economic data, with some saying the Monetary Policy Committee may pause at its meeting in August. "Data dependency does not assure a smooth sequence of rate cuts in future," Emkay Wealth Management said in a note. 

Reported by Anshul Choudhary

Edited by Saji George Titus

RBI POLICY STORIES

REPO RATE CUT BY 50 BPS, CRR BY 100 BPS, NEUTRAL STANCE ADOPTED

The Reserve Bank of India's Monetary Policy Committee on Friday unexpectedly lowered the policy repo rate by 50 basis points to 5.50%, Governor Sanjay Malhotra said. The committee also changed the policy stance to 'neutral' from 'accommodative'.

The rate-setting panel's decision was a surprise. In an Informist poll of 14 economists and market participants, 13 had expected the MPC to lower the repo rate by 25 bps from 6.00%, while only State Bank of India projected a 50-bps cut.

The RBI also cut the cash reserve ratio by 100 bps to 3.00% of net demand and time liabilities, in four tranches.

This is the third consecutive meeting in which the MPC has lowered the repo rate. The committee started lowering interest rates in February with a 25-bps cut, followed by another 25-bps cut in April. Friday's decision brings the cumulative interest rate easing in 2025 to 100 bps.

The decision to lower the repo rate by 50 bps was not unanimous, as external member Saugata Bhattacharya voted for a 25-bps reduction in the key rate.

"The near-term and medium-term outlook now gives us the confidence of not only a durable alignment of headline inflation with the target of 4%, as exuded in the last meeting but also the belief that during the year, it is likely to undershoot the target at the margin," Malhotra said in his statement. "Growth, on the other hand, remains lower than our aspirations amidst challenging global environment and heightened uncertainty."

Malhotra said it was imperative to continue to stimulate domestic private consumption and investment through policy levers to step up the growth momentum. "This changed growth-inflation dynamics calls for not only continuing with the policy easing but also front-loading the rate cuts to support growth," he said. 

With the MPC reducing the repo rate by 100 bps in quick succession since February, there is limited space to support growth, Malhotra said. "Hence, the MPC also decided to change the stance from accommodative to neutral," he said. 

The RBI lowered its CPI inflation projection for the current fiscal year to 3.7% from 4.0%. The GDP growth forecast for FY26 was left unchanged at 6.5%.

"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," Malhotra said.

With the repo rate lowered to 5.50%, the Standing Deposit Facility rate comes down to 5.25%, while the Marginal Standing Facility and bank rate now stand at 5.75%. Minutes of the June MPC meeting will be published on Jun. 20. The next meeting of the MPC is scheduled for Aug 4-6. 

Reported by Shubham Rana

Edited by Avishek Dutta

CRR CUT BY 100 BPS TO 3% OF NDTL, TO INFUSE INR 2.5 TLN LIQUIDITY

The Reserve Bank of India cut the cash reserve ratio by 100 basis points to 3% of banks' net, demand and time liabilites, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee's meeting on Friday. The cut, to carried out in four tranches of 25 basis points each, is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system, the governor said. 

The cut in CRR was not the only surprise announced by the central bank, as it unexpectedly lowered the policy repo rate by 50 basis points to 5.50%. 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 reduction in cash reserve ratio will be carried out in four equal tranches with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1 and Nov. 29, the governor said. "Besides providing durable liquidity, it will reduce the cost of funding of banks, thereby helping in monetary policy transmission to the credit market," Malhotra said. 

The RBI has already infused INR 9.5 trillion of liquidity into the banking system since January, the governor said. Open market purchases of gilts, including through NDS-OM, injected durable liquidity amounting to INR 5.2 trillion. Additionally, term variable rate repo auctions and dollar/rupee buy-sell swaps injected liquidity amounting to INR 2.1 trillion and INR 2.2 trillion, respectively, during the same period. The central bank remains committed to provide the banking system with liquidy when required, Malhotra said. 

The comfortable liquidity surplus in the banking system has further reinforced transmission of policy repo rate cuts to short-term rates, Malhotra said. Since the RBI cut the repo rate for the first time in February, the weighed average call rate has moderated by 70 bps, the three-month treasury bill rate by 88 bps, three-month commercial papers issued by non-bank finance companies by 143 bps, and three-month certificates of deposit rate by 138 bps. "The compression in CP and CD spreads over T-bill suggests easier financing conditions for banks and corporates," the RBI said. 

"However, we are yet to see a perceptible transmission in the credit market segment, though we must keep in mind that it happens with some lag," Malhotra said. The weighted average lending rate on fresh rupee loans and outstanding rupee loans declined by 6 bps and 17 bps, respectively, during Feb-Apr, reflecting policy rate transmission to lending rates. The weighted average domestic term deposit rates on fresh deposits declined by 27 bps.

At the post-policy press conference, Malhotra reiterated that the cut in cash reserve ratio was to infuse liquidity and cut the cost of funding. He also said the RBI currently sees 3% cash reserve ratio as sufficient. While one doesn't "know what the future holds", 3% was a comfortable ratio to have as of now, he said. 

The central bank expects net interest margins of Indian banks to improve by 7 basis points due to the addition of surplus liquidity after the cash reserve ratio cut comes into effect, Malhotra said. The improved liquidity will also support credit growth, he said. 

As in the recent past, the RBI will continue to use the various tools at its disposal, including dollar/rupee swaps, open market purchases of gilts, and variable rate repo auctions, to provide the required liquidity, Malhotra said. 

Reported by Kabir Sharma

Edited by Avishek Dutta

NEUTRAL STANCE DOESN'T MEAN RATE ACTION IN NEXT POLICY- MALHOTRA

The Reserve Bank of India's decision to shift to a 'neutral' stance from 'accommodative' doesn't necessarily imply an immediate rate action in the next policy meeting, Governor Sanjay Malhotra said at the post-policy press conference Friday following the second bi-monthly monetary policy statement for 2025-26 (Apr–Mar). "Stance doesn't mean immediate action in next policy... accommodative, tightening doesn't mean rate change at next meet," Malhotra said.

Apart from changing the stance, the central bank's Monetary Policy Committee also unexpectedly lowered the policy repo rate by 50 basis points to 5.50%. The rate-setting panel's decision came as a surprise for the market. In an Informist poll of 14 economists and market participants, 13 had expected the MPC to lower the repo rate by 25 bps from 6.00%, while only State Bank of India had projected a 50-bps cut. The RBI also cut the cash reserve ratio by 100 bps to 3.00% of net demand and time liabilities, in four tranches. 

Malhotra said that the accommodative stance was "just an intent" and the change to neutral was supported by current conditions. "Current conditions warranted change of stance," he said. "MPC will continue to monitor the incoming data and especially given these uncertainties, we will move primarily on what the data suggests."

Further, the RBI governor added that neutral stance implies that future rate decisions will depend on upcoming data. "Neutral stance means next move depends on upcoming data and neutral stance means rate can go either way," he said. Malhotra said all six members of the MPC were unanimous on the decision to change stance. 

Reported by Vaishali Tyagi

Edited by Tanima Banerjee

REGULATION MAKING FRAMEWORK TO REVIEW NORMS FOR TYPE-I NBFCS

The Reserve Bank of India has issued a regulation-making framework that will review the norms for type-I non-banking financial companies, or non-deposit taking ones, Governor Sanjay Malhotra said at the post-policy conference. The framework will be made available for public review "not only in letter but also in intent", he said. 

According to Malhotra, the framework would comprise three essential components, which include public consultations to understand the views of all the important stakeholders. Second, the RBI will carry out impact analysis to gauge the impact of the norms on the banking system, other regulated entities, customers, and all other stakeholders, he said. As it is often not possible to do a quantitative study every time, the analysis would be qualitative, Malhotra said.

The third element of the framework entails a regular review of the regulations, directions and policies with regard to type-I NBFCs, the governor said. "It is dynamic, policies have to change with times and so, it is only in that context that we are going to review some of the policies related to type-I NBFCs," Malhotra said. 

In its annual report for 2025-26 (Apr-Mar), the RBI said it plans to review the financial inclusion index and examine ways to enhance supervision of NBFCs, particularly those in the base layer. The RBI will also evaluate how well regulated entities were adhering to pricing norms to prevent excessive interest rates on loans. 

Reported by Vidhushi RajPurohit

Edited by Avishek Dutta

SANKAR SAYS NO TARGET FOR GILT YLDS, MKT WILL FIND ITS OWN LEVEL

The market determines the proper yield level for government bonds, while the Reserve Bank of India has no set targeted levels for gilt yields, RBI Deputy Governor T. Rabi Sankar said at the post-policy press conference on Friday. The RBI's Monetary Policy Committee meeting outcome is one of the myriad factors that affect the gilts market, he said, adding that short-term gilts are usually more receptive to shifts in policy rates.  

"Short-end adjusts quicker to rate changes, when rates are cut the curve steepens and when the rates are hiked the curve flattens," Sankar said. "But over a period of time this gets adjusted." 

Earlier in the day, the RBI's Monetary Policy Committee unexpectedly lowered the policy repo rate by 50 basis points to 5.50% and also changed the policy stance to 'neutral' from 'accommodative'. Moreover, the RBI also lowered the cash reserve ratio by 100 bps to 3.0% of banks' net demand and time liabilites, which is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system. 

A cut in policy rates and infusion of liquidity into the banking system are expected to make the yields on short-tenure gilts to fall faster than the long-term bonds, which will likely lead to a steepening of the yield curve. As of 1450 IST, the yield on the 10-year benchmark, 6.33%, 2035 gilt over the 5-year benchmark 6.75%, 2029 has widened to 44 bps from 35 bps at Indian market close Thursday.

"If market feels it (yield curve) is too steep compared to what it should be they would adjust to that," Sankar said. "We'll leave it to the market." 

Reported by Vidhushi RajPurohit

Edited by Tanima Banerjee

TO RELEASE REVISED LIQUIDITY MGMT FRAMEWORK AS SOON AS POSSIBLE

The Reserve Bank of India plans to revise the liquidity management framework as soon as possible, Governor Sanjay Malhotra said on Friday. "Once internal examination is over, we will come out with the framework," Deputy Governor T. Rabi Sankar said in a post-policy press conference.

"The money markets are not unified...from a transmission perspective therefore, we need to understand these issues deeper. We have been examining this issue and I cannot give a timeframe on this," Malhotra said.

In its annual report for financial year ended Mar. 31, the RBI had set out its agenda to review the liquidity management framework in 2025-26 (Apr-Mar). In the report, the RBI said it will revisit the optimal level of systemic liquidity required for effective transmission of monetary policy.

The central bank's Monetary Policy Committee Friday lowered the policy repo rate by 50 basis points to 5.50%. The committee also changed the policy stance to 'neutral' from 'accommodative'. The RBI also cut the cash reserve ratio by 100 bps to 3.00% of banks' net demand and time liabilities, in four tranches starting September, which will infuse INR 2.5 trillion of liquidity into the banking system.

The RBI has already infused INR 9.5 trillion of liquidity into the banking system since January, the governor said. Of this, open market purchases of gilts, including through RBI's Negotiated Dealing System-Order Matching platform, injected durable liquidity amounting to INR 5.2 trillion. Term variable rate repo auctions and dollar/rupee buy-sell swaps injected liquidity amounting to INR 2.1 trillion and INR 2.2 trillion, respectively, during the same period. 

Reported by Srijita Bose

Edited by Ashish Shirke

FY26 GDP GROWTH VIEW RETAINED AT 6.5%, APR-JUN ALSO SEEN 6.5%

The Reserve bank of India Friday retained its GDP growth projection of 6.5% for 2025-26 (Apr-Mar). The central bank also retained its growth estimtes 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. After National Statistics Office's data showed that the GDP grew 6.5% in FY25, slowest in four years, the RBI decided to cut the policy repo rate by 50 basis points to 5.5%, and also changed its stance to 'neutral' from 'accommodative'. 

There was very limited space left for the Monetary Policy Committee to support growth, hence, the panel decided to change its stance at its meeting this week, RBI Governor Sanjay Malhotra explained in his statement. The RBI's growth projection for FY26 is in line with that of the finance ministry, which expects the GDP to expand in the range of 6.3-6.8% in the current year. 

Although the Indian economy is growing at a faster pace amid challenging global environment and heightened uncertainty, the GDP growth remains lower than the RBI's aspirations, Malhotra said. "Thus, it is imperative to continue to stimulate domestic private consumption and investment through policy levers to step up the growth momentum."

With the expectation of an above normal monsoon rains this year, the farm sector outlook is bright, which may drive rural demand, Malhotra said. Sustained buoyancy in services activity would nurture a revival in urban consumption. Healthy balance sheets of banks and corporates, government's continued thrust on capital expenditure, improving business optimism, and easing of financial conditions should help further revive investment activity, Malhotra added. 

"Spillovers emanating from protracted geopolitical tensions, and global trade and weather-related uncertainties pose downside risks to growth," Malhotra said. "The risks are evenly balanced."

The RBI's policy measures are likley to show positive impact on India's GDP growth from October, according to Malhotra. But he also added that it would be difficult to estimate the extent of the impact, considering the uncertain gepolitical environment. The RBI wants the economy to grow as fast as possible, and aspires for a level close to 7-8%, Malhotra said at the post policy press conference.  

Malhotra expects the free-trade agreement with the UK and a deal with ther nations to provide some relief to the economy in terms of growth, he said. India and the UK concluded negoitions for a trade deal last month. Both the sides are currently engaged in leagal scrubbing of the text of the pact, according to the Indian commerce ministry. It would take over a year in ratification of the agreement. India is also discussing trade deals with the US and the European Union and discussions for both of them are in an advanced stage. 

Besides, growth will also depend on other macro-economic factors, Malhotra said. "I believe in doing my job and we have done that bit. It is expected that everyone else will be doing their bit," Malhotra responded when asked if he expected fiscal measures to support growth, considering there was "very limited space left for the monetary policy to support growth". 

Reported by Krity Ambey

Edited by Akul Nishant Akhoury

SHARPLY CUTS Q1 CPI VIEW 70 BPS TO 2.9%, FY26 BY 30 BPS TO 3.7%

The Reserve Bank of India Friday slashed its headline inflation forecast for the quarter ending June by 70 basis points to 2.9%, while lowering the projection for 2025-26 (Apr-Mar) by 30 bps to 3.7%. While the central bank draws comfort from the inflation outlook that points towards benign prices across major constituents, Governor Sanjay Malhotra said that "we need to remain watchful of weather-related uncertainties and the still evolving tariff related concerns with their attendant impact on global commodity prices."

"The near-term and the medium-term outlook now gives us confidence of not only a durable alignment of headline inflation with a target of 4% but also the belief that during the year, it is now likely to undershoot the target at the margin," Malhotra said in his third monetary policy statement on Friday. The RBI wants to give out the message that it has won the war against inflation, which is broadly under control, he said at the post-monetary policy press conference.

"While food inflation outlook remains soft, core inflation is also expected to remain benign with easing of international commodity prices in line with the anticipated global growth slowdown," he said. The central bank governor, however, noted that the last mile of disinflation "is turning out to be a little more protracted". 

"As growth inflation trade-offs is becoming more challenging, monetary authorities are charting out a more cautious and carefully calibrated policy trajectory," Malhotra said. Due to the above reason, the RBI's Monetary Policy Committee unexpectedly lowered the policy repo rate by 50 bps to 5.50% on Friday, and also changed the policy stance to 'neutral' from 'accommodative'.

As per latest data, 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%. "The risks are evenly balanced," the central bank said. The governor, at the press coneference, also said that inflation is expected to average at 4.5% in FY27 and that coupled with current uncertainties leave "limited space" for monetary policy to support growth. 

While inflation was below the RBI's 4% target in April, it is to be noted that core inflation--which excludes food and fuel items, whose prices can be volatile--remained at 4.1% for the second consecutive month in April. The last time core inflation was higher than 4.1% was in October 2023, when it was 4.3%.

Governor Malhotra is, however, not too worried as core inflation remained largely steady and contained during March and April, despite increase in gold prices exerting upward pressure. Gold, which has a share of 2.3% within CPI excluding food and fuel, contributed 21.4% to the core inflation in April 2025.

Food inflation--which has troubled the central bank for far too long--is expected to be benign due to the record wheat production and higher production of key pulses in the rabi crop season ensuring adequate supply of key food items. Going forward, the likely above normal monsoon along with its early onset augurs well for kharif crop prospects, the governor said. "Reflecting this, inflation expectations are showing a moderating trend, more so for the rural households," he said.

It is safe to say that inflation is not a concern for the central bank presently, especially not when compared to growth but price stability remains crucial. "I would like to highlight that there is no tussle between price stability and growth in the medium and long term," Malhotra said, adding that price stability is not sufficient to ensure growth. "A supportive policy environment is vital. This is even more important during periods of high uncertainties such as the current times," he said. "At the Reserve Bank, therefore, while price stability remains the focus of monetary policy, we are not oblivious to putting in place complementary monetary and credit policies and regulations that support growth and prosperity," the governor said.   

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

CAD FOR FY25 SEEN LOW, FOR FY26 WITHIN SUSTAINABLE LEVELS

India's current account deficit for 2024-25 (Apr-Mar) is expected to remain low, with the trade deficit moderating in the March quarter and services exports standing strong, Reserve Bank of India Governor Sanjay Malhotra said Friday. Despite rising geopolitical and trade uncertainties, India's merchandise trade remained robust in April. However, the trade deficit widened dueing the month as growth in imports outpaced exports. 

India's merchandise trade deficit in April rose to $26.42 billion from $19.19 billion a year ago. While exports rose to $38.49 billion from $35.30 billion a year ago, imports surged to $64.91 billion from $54.49 billion. 

Going forward, net services and remittance receipts are expected to remain in surplus, offsetting the widening trade deficit, Malhotra said. The current account deficit for FY26 is projected to remain well within sustainable levels, he said.

India's current account deficit narrowed to $11.46 billion in the December quarter from $16.67 billion in Jul-Sept. On year, the current account deficit was unchanged in Oct-Dec at 1.1% of GDP, down from 1.8% in Oct-Dec. 

Reported by Gowri Lakshmi

Edited by Avishek Dutta

FX RESERVES $691.5 BLN, WILL SCALE UP WHEN POSSIBLE - MALHOTRA

India's foreign exchange reserves fell to $691.5 billion in the week ended May 30 from $692.72 billion the week ago, Reserve Bank of India Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee meeting on Friday. "These are sufficient to fund more than 11 months of goods imports and about 96% of external debt outstanding," Malhotra said.

In the week ended May 30, the rupee fell 0.6% against the dollar, while it rose 0.3% the week before. Last week, the dollar index, which measures the strength of the greenback against a basket of six major currencies, rose 0.3%. Calculated in dollar terms, the RBI's foreign exchange reserves also reflect the impact of appreciation or depreciation of currencies other than the US dollar, such as the euro, the pound sterling, and the yen, held by the central bank.

Answering questions by reporters at the post-policy press conference, Malhotra said the central bank was not "unduly concerned" about the impact of net short outstanding dollar/rupee forward book on reserves. "We are not unduly worried on that...It is a very, very comfortable level (foreign exchange reserves) to be in. Yes, if there are opportunities and we can build reserves, that will happen. But that is not something we will be unduly bothered about," he said.

In recent weeks, the central bank has refrained from intervening aggressively in the currency market by selling dollars to prevent the rupee from falling sharply, as per market participants. Answering a question about how the RBI will navigate building foreign exchange reserves and managing the exchange rate volatitity amid uncertain US policies, Malhotra said the RBI's policy was very clear and consistent and it doesn't target any specific level. 

"We do not manage, try to target, any price, any level, any band...if there is any abnormal volatility, that is what we try to counter, and we let the prices be determined by the market," he said.

While detailing the policy outcome, he noted widespready commentaries over the moderation of the net foreign direct investment and said the net FDI was considered primarily due to concerns regarding its impact on foreign exchange reserves. "However, when it comes to investment it is the gross FDI, which is actually important," Malhotra said. 

Reported by Sourabh Kumar

Edited by Avishek Dutta

GOLD LOAN NORMS BY MON, TO HELP REGULATE SECTOR WELL - MALHOTRA

The Reserve Bank of India will release the final guidelines on gold loans likely by Monday, with an aim to regulate the sector more effectively, Governor Sanjay Malhotra said while announcing the central bank's second bi-monthly monetary policy for 2025-26 (Apr-Mar). "We hope the final gold loan norms will help us regulate the sector well and new regulations will be framed after consultation and impact study," Malhotra said. "New gold loan norms will make such loans safe." The draft released in April on gold loan norms were not final and merely reiterated existing rules, he addded. 

According to the draft guidelines issued by the RBI in April, the maximum loan-to-value ratio in respect of gold loans should not exceed 75% of the value of gold and the ceiling of 75% will apply to all gold loans sanctioned by non-bank finance companies, irrespective of the purpose for which the loan has been sanctioned. Loan-to-value ratio means the ratio of the outstanding loan amount, including any accrued and unrealised interest, to the value of the collateral security on a reference date. 

Further, the RBI governor said that some regulated entities were not adhering to gold loan norms, which necessitated the introduction of the new guidelines. Malhotra highlighted that some non-banking financial companies and small banks were lending up to 88% of the gold value. "Declaration of ownership will suffice for gold loans, and credit appraisal will not be required for gold loans up to INR 250,000," Malhotra said. Further, he said that now loan-to-value ratio will be 85% for small loans up to INR 250,000 per borrower, which will include both interest and principal. 

Under the earlier proposed regulations, lenders must refrain from providing loans when the ownership of the collateral is uncertain. If the original gold purchase receipts are not accessible, a document from the borrower must be created that clarifies how the ownership of the collateral has been established, which bankers indicate is difficult to accomplish.

Reported by Vaishali Tyagi

Edited by Tanima Banerjee

NO IMMEDIATE PLAN TO CHANGE FII CAP; MICROFIN PORTFOLIO SHRINKING

Reserve Bank of India Governor Sanjay Malhotra Friday ruled out any immediate change in investment limits for foreign institutional investors. Speaking at the post-policy press conference following the second bi-monthly monetary policy for 2025-26 (Apr–Mar), Malhotra said the central bank was not considering increasing the investment limit for FIIs at this stage. "The limit is already there. We are not planning any changes anytime soon," Malhotra said.

However, he added that the central bank was reviewing the ownership structure and eligibility criteria for foreign investors, including non-residents. "These are deeper questions. We will have to think through them, keeping in mind what is correct for the overall economy," he said, adding that the process will take time.

Malhotra also stressed the importance of trust in the banking system. "Every common man trusts banks with their money, and we have to retain that trust. For that, we need trustworthy management in banks," he said. When asked about licensing of small finance banks, Malhotra clarified that the RBI was not operating on a fixed timeline. "That doesn't mean we don't have internal timelines," he said.

On reviewing the application of two small finance banks for univarsal licence, Malhotra said the RBI has already rejected one application and is processing the rest. "You will see decisions soon, and they will be communicated through press releases," he added. 

Malhotra also acknowledged a visible recalibration in microfinance portfolios due to shifting business strategies. Deputy Governor Swaminathan Janakiraman addressed concern related to microfinance institutions, particularly in the context of their recent business adjustments.

"We have seen a shrinkage in the MFI portfolio due to recalibration," Swaminathan said. He noted that many MFIs are modifying their business models and collection methods in response to changing market conditions. The RBI has been engaging with them through supervisory channels to monitor this process, he said.

He added that some degree of portfolio volatility was natural and the situation should stabilise over the coming quarters. "Going forward, the MFI segment should see more stability, depending on economic conditions and borrower income trends," he said. Swaminathan clarified that there is no regulatory action currently planned for any specific segment. "As the Governor said, there are no new regulatory measures being considered at this point in time". 

Reported by Sachi Pandey

Edited by Akul Nishant Akhoury

NOT MUCH IMPACT ON ECON FROM PAK CONFLICT, COVID CASES: MALHOTRA

The Reserve Bank of India Governor Sanjay Malhotra Friday said that there is no "meaningful" adverse impact from India's recent conflict with Pakistan, even though briefly there was an impact on economic activities in the northern region. "The conflict was a skirmish and had a very very limited, negligible impact on the economy," the governor said. 

Malhotra noted that during the time of the conflict between the two nuclear-powered neighbours, air passenger traffic did certainly decrease but there was no major supply chain disruption. "Prices of few things in those regions had gone up but it has all normalised, it does not have any meaningful or major impact on the economy," Malhotra said at the post-monetary policy press conference. 

The RBI's Monetary Policy Committee, earlier in the day, unexpectedly lowered the policy repo rate by 50 basis points to 5.50% and also changed the policy stance to 'neutral' from 'accommodative'.

"The near-term and medium-term outlook now gives us the confidence of not only a durable alignment of headline inflation with the target of 4%, as exuded in the last meeting but also the belief that during the year, it is likely to undershoot the target at the margin," Malhotra said in his statement. "Growth, on the other hand, remains lower than our aspirations amidst challenging global environment and heightened uncertainty."

Albeit limited, many analysts did expect some economic impact from India's conflict with Pakistan. Tensions escalated between New Delhi and Islamabad after Pakistan-based terrorists killed 26 people, mainly tourists, in Jammu and Kashmir's Pahalgam on Apr. 22. India launched Operation Sindoor in retaliation to the attack on May 7 and destroyed terrorist camps at nine locations in Pakistan and Pakistan-occupied Kashmir. This resulted in counter action by Pakistan. Both the sides arrived at an understanding to stop firing and military actions on May 10.

Governor Malhotra also said that the sudden spike in COVID-19 cases is not a matter of concern right now. "It is become just one of the viruses and hopefully it should stay like that," he said. 

When COVID-19 pandemic hit in 2020, the economy had gone for a toss, with India's GDP contracting 5.8% in 2020-21 (Apr-Mar). According to data from the health ministry, as of 0800 IST Friday, the total number of active COVID-19 cases in India totalled 5,364. RBI sees India's GDP growth at 6.5% in FY26.

Reported by Priyasmita Dutta

Edited by Vandana Hingorani

KATHPALIA'S RESIGNATION AS INDUSIND BK MD "GOOD ENOUGH": MALHOTRA

The resignation of Sumanth Kathpalia, the former managing director and chief executive officer of IndusInd Bank, "should be good enough", Reserve Bank of India Governor Sanjay Malhotra said while addressing questions around the recent debacle at India's fifth largest private sector bank.

"The MD, CEO has resigned for taking moral responsibilities, I thought that should be good enough. Do you expect that all the board members...? What are you hinting at? I think the MD, CEO if he has taken responsibility, that is at the board level itself," Malhotra said when asked if the RBI will ensure accountability from the board of IndusInd Bank.

Kathpalia and Arun Khurana, the bank's deputy chief executive officer, resigned after irregularities at the bank became public.

In an exchange filing on Mar. 10, IndusInd Bank said it had found discrepancies in the accounting of its derivative portfolio and expected this discrepancy would lead to an impact of about 2.35% on its net worth or INR 19.60 billion. Consequently, the bank reported a net loss of INR 22.36 billion for the quarter ended March.

In April, after an independent audit, the bank said the accounting hit from these trades had been estimated at INR 19.79 billion, and it would be "appropriately" reflected in the statements for FY25. The segment results showed a loss of INR 14.57 billion on account of treasury operations in the March quarter.

Malhotra said speculation around the issue should be avoided and law should be allowed to take its due course. "In case RBI has to step in and take any action, then RBI will not be failing in its duty," he said.

The governor also said that such issues don't bother the central bank as long as they are far and few in between. IndusInd Bank has taken steps to improve its accounting practices, Malhotra said. After the governor's comments, shares of IndusInd Bank rose over 4% to a high of INR 845.85 on the National Stock Exchange. At 1423 IST, shares of the bank were 2.8% higher at INR 825.50. 

RBI Deputy Governor Swaminathan J. also said that the issue should settle down very soon. The central bank's priority remains that customers don't face any losses and that the accounting is done properly, Swaminathan said.

There is no impact on the broader banking system from the IndusInd Bank issue, Swaminathan said. "We will keep monitoring the system as a whole," he said. "Each of these crisis gives us some lessons, we sharpen our supervisory tools and we calibrate our supervisory approach basis the lesson that we learn from this, so going forward we will look for these kind of red flags..." he said. 

Reported by Kabir Sharma

Edited by Ashish Shirke

CREDIT TRANSMISSION STILL LAGGING DESPITE SURPLUS LIQUIDITY

Credit transmission in the lending market is yet to fully take effect, despite comfortable liquidity in the banking system, Reserve Bank of India Governor Sanjay Malhotra said on Friday. Speaking at the central bank's second bi-monthly monetary policy for 2025-26 (Apr-Mar), Malhotra acknowledged that transmission typically happens with a lag. "The comfortable liquidity surplus in the banking system has further reinforced transmission of policy repo rate cuts to short-term rates," he said.

Later in the press conference, Malhotra reiterated that the transmission of monetary policy to the credit market is still unfolding and will take more time to reflect fully. He said policy transmission is happening but remains uneven. "We are seeing monetary policy transmission, especially at the shorter end of the curve," Malhotra said. 

Citing past cycles, Malhotra noted that monetary policy transmission typically plays out over six to nine months. "This is what we have seen in the last two cycles—both during tightening and easing. It happens, but with a lag," he said.

While the impact is visible in money market rates and on the deposit side, broader credit market transmission is still evolving, Malhotra said. "Credit transmission cannot happen overnight. It takes time". So far, banks have passed on around 27 basis points on the deposit side, and about 25 basis points on lending, Malhotra said. 

He also noted that front-loaded rate cuts help support quicker transmission. "We need even faster policy transmission. That's why we have provided ample liquidity—to improve earnings, reduce borrowing costs, and aid in transmission," Malhotra said. The RBI estimates that the liquidity measures could improve bank earnings by at least 7 basis points.

However, Malhotra cautioned that assessing how monetary policy actions translate into real economic outcomes remains difficult. "It's very difficult to assess how this transmission moves from monetary policy to credit rates and then into the real economy," he said. He emphasised that credit growth depends on demand and macroeconomic conditions, which the central bank cannot directly control. "We cannot regulate credit or force rates down. It has to be market-driven," he said. "The market will respond to credit demand. There are many players now—(banks, non-banking financial companies, alternative investment funds, private credit providers) so the system must be left to market forces."

Malhotra also noted that short-term rates in the money market have reflected policy easing, but the pass-through to broader credit segments remains slow, he said. He said that earlier stress in unsecured retail loans and credit card receivables has started to ease. However, pressure in the microfinance segment still persists. Though banks and non-banking financial companies operating in these high-risk segments are adjusting their business strategies.

Lenders have tightened credit underwriting, strengthened collection processes, and are realigning their lending models to contain future risks. "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," Malhotra said. 

NBFCs also show resilience, with strong capital buffers and improved gross non-performing asset ratios. However, despite sector-specific concerns, overall credit risk in the system appears well-contained, supported by proactive steps from lenders and stable macroeconomic conditions, the governor said. 

At the system level, scheduled commercial banks continue to show robust financial strength, Malhotra said. "The asset quality parameters, liquidity buffers and profitability parameters have shown further improvement," he said. 

Reported by Sachi Pandey

Edited by Deepshikha Bhardwaj

HIGH GROSS FDI SHOWS INDIA AS ATTRACTIVE INVESTMENT DESTINATION

Reserve Bank of India Governor Sanjay Malhotra said the rise in the gross foreign direct investment in 2024-25 (Apr-Mar) demonstrates that foreign investors continue to consider India as a desirable investment destination. In contrast, the net FDI figure decreased in FY25, mostly due to a rise in repatriations, Malhotra said in the RBI's Monetary Policy statement Friday. 

"Rise in repatriation is a sign of a mature market where foreign investors can enter and exit smoothly,"  Malhotra said.

Gross FDI inflows rose 14% on year to $81.0 billion in FY25. However, FPI inflows fell to $17 billion in the last fiscal due to profit booking by overseas investors in the Indian equity market, the governor said. So far in FY26, FPI activity into domestic market recorded an outflow of $2.1 billion. 

Net FDI inflows fell to $400 million in FY25 from $10.1 billion a year ago. Malhotra said the gross FDI figure holds more significance to understand the investment landscape than the net FDI as the latter is of greater importance for foreign exchange reserves management. As on May 30, 2025, India's foreign exchange reserves was $691.5 billion.

"These (foreign exchange reserves) are sufficient to fund more than 11 months of goods imports and about 96% of external debt outstanding," the governor said. "Overall, India's external sector remains resilient as key external sector vulnerability indicators continue to improve." 

US$1 = INR 85.73

Reported by Vidhushi RajPurohit

Edited by Tanima Banerjee

TOP 10 ANNOUNCEMENTS BY GOVERNOR MALHOTRA AFTER MPC MEET

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. 

Compiled by Vaishali Tyagi

Filed by Vandana Hingorani

End

Compiled by Shivaji Jagatap

Filed by Ashish Shirke

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