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Informist, Wednesday, Aug. 6, 2025

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

SPECIAL STORIES

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RBI WATCH: MALHOTRA'S COMMUNICATION CHANGES WITH FIRST NO-ACTION POLICY

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Since taking over as the governor of the Reserve Bank of India, Sanjay Malhotra has only delivered headlines with his actions and, at times, bombastic statements. These appeared bombastic only because his predecessors, and indeed most central bankers, chose less over more when it comes to communication.

But this refreshing bombast was missing from the governor's comments Wednesday, perhaps in line with the lack of monetary policy action by the central bank. Unlike at his first three monetary policy statements, Malhotra's demeanour Wednesday was restrained as he announced his first no-action policy statement.

Malhotra, who took charge as RBI's chief in December, has had an eventful run at delivering monetary policy statements so far as the rate-setting panel opted for a total of 100 basis points of rate cuts between February and June. However, the August policy was different as the repo rate was kept unchanged at 5.50% and the stance was retained at 'neutral'.  

And with the lack of action, one could evidently see a shift in the governor's demeanour and communication, as he refrained from giving detailed guidance on the future trajectory of interest rates in his statement. In the June policy, he had declared that after the jumbo easing he had unveiled, "monetary policy is left with very limited space to support growth". This policy, he gave a very signature, typical-to-a-governor statement, saying "we will not be found wanting in whatever is required to provide the right balance of price stability and economic growth for the development of our country."

When he was directly asked why he had chosen not to give guidance on the future rate trajectory, the governor said the rate decisions will be made on a policy-to-policy basis owing to uncertainty, keeping it as vague as possible.

Moreover, in a clear drop in optimism, Malhotra dialled down his aspirational growth target to a more generic "more than 6.5%" as compared to 7-8% in the June press conference. One can, perhaps, attribute Malhotra's measured tone to the prevailing uncertainty on the global front, especially on the US tariffs. "We had already reduced our (GDP) forecast, which was earlier 6.7% to 6.5%. Some of the global uncertainties have already been factored in the revised growth forecast. However, there is still a lot of uncertainty...and it is really very difficult to predict as to what the impact will be (from US tariffs)," Malhotra said. 

But at the post-policy conference in June, the governor had spoken at length about how in times of uncertainties, he wanted to give certainty to the markets through monetary policy actions. However, now, when US President Donald Trump is on a rampage about imposing tariffs on Indian exports, which has caused extreme volatility in the foreign exchange market, the governor side-stepped questions seeking a sense of certainty for the markets. 

The rupee has been hovering near its record low and has depreciated almost 2.5% against the dollar since the last policy decision, but instead of providing clarity or comfort to the market, the governor only said that the Indian currency could witness some volatility due to global uncertainties.   

Malhotra's frank and clear communication was a breath of fresh air. He was very open and vocal about his views on the fiasco related to IndusInd Bank's derivative accounting discrepancy and the subsequent top management exits at the June policy press conference, even while acknowledging that the central bank does not comment on issues relating to individual entities.

"They (IndusInd Bank episode) should not bother us too much as long as they are far and few between and limited. I think the bank has taken enough number of steps to improve their accounting and other practices," Malhotra had said in June. 

However, this time, he refused to answer any questions related to the same bank, blandly saying he will not answer any questions related to a specific entity.

To be sure, the question this time was pointed: Was the RBI considering any action against the promoters of IndusInd Bank or its Board? An answer to this question, no matter how generic, would have deepened market confidence in the regulator and would have done wonders to foster a sense of accountability, particularly given that according to a media report, the bank's former chief executive officer has applied to settle the charge of insider trading by paying a penalty without the admission of guilt.

Malhotra's earlier openness in communication was a welcome departure from the usual communication strategy adopted by previous governors and indeed by several central bankers across the world – of speaking less. Now it looks like Malhotra is also moving towards the tried and trodden path. That will be a pity. The economy, and indeed the world, needs more communication and more transparency. 
 

Reported by Pratiksha

Edited by Vandana Hingorani

FOCUS: MPC TIES ITS HANDS FOR FUTURE RATE CUTS WITH AUGUST STATUS QUO

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The Reserve Bank of India's Monetary Policy Committee has tied its own hands by not cutting interest rates Wednesday. Despite lowering the inflation projection for 2025-26 (Apr-Mar) by 60 basis points to 3.1%, the committee chose not to lower rates in its August meeting. This puts the central bank's rate-setting panel in a situation where now on it can cut interest rates only in response to a sharp slowdown in growth. One wonders if the MPC realises this.

RBI Governor Sanjay Malhotra had previously said lower-than-expected inflation could offer space for further monetary policy easing. This space and opportunity went unutilised as the MPC appears to have prioritised the outlook for inflation one year ahead over current growth.

The MPC unanimously held the repo rate at 5.50% Wednesday, having lowered it by 100 bps between February and June. It also retained the neutral stance, which, according to Malhotra, allows the MPC to keep rates on hold or move them in either direction. But RBI's growth and inflation projections suggest the repo rate is more likely to remain at 5.50% for a while.

To be sure, more rate cuts are not entirely ruled out. Some economists expect a rate cut in the October meeting itself.

"De-facto given the inflation projections, the space for another 25-50 bps rate cut remains in place, although the RBI would exercise that only if there is a significant downside risk to growth – both due to domestic activity performance and the tariff impact," HDFC Bank said in a report. "Only if the tariff outcome becomes decisively negative between now and the October policy, the probability of a rate cut could then increase for the October policy."

A rate cut this time would have been consistent with the logic given by MPC for the 50-bps cut in June. Malhotra had said in June that the committee had front-loaded 50 bps of rate cut to provide certainty in an "uncertain environment".

The governor's comments Wednesday did little to provide that certainty. He said there is still a lot of uncertainty, and it is very difficult to predict the impact of US tariffs on growth.

Had the MPC lowered interest rates in this meeting, it would have provided more time for the transmission to the real economy, something Malhotra had focused on since the committee first cut rates in February. A rate cut in October or December in response to US tariffs or slowing growth would take additional time to reflect in lending and deposit rates.

INFLATION VS GROWTH

A predicament for the MPC is that it often has to prioritise between growth and inflation. Right now, it seems the committee has given more importance to inflation.

"Despite sharply lowering its inflation forecast to 3.1% from 3.7% earlier, RBI's decision to keep rates steady emanates from their focus on 1-year-ahead expected inflation that is looking well above 4%, while growth in their view has held up well, despite global uncertainty," Madhavi Arora, chief economist at Emkay Global Financial Services, said in a note.

Malhotra said the inflation outlook for FY26 has become more benign than expected in June, supported by large favourable base effects and steady progress of the southwest monsoon. CPI inflation, however, is likely to edge up to above 4% in the March quarter and beyond as unfavourable base effects come into play, he said.

The RBI projects CPI inflation at 4.4% in the March quarter and 4.9% in Apr-Jun of 2026. "However, focusing on 1-year-ahead expected inflation appears increasingly misplaced in an evolving world – particularly as the global landscape continues to shift toward a disinflationary bias in Asia," Arora said.

The central bank retained its growth projection for FY26 at 6.5% despite higher risks from the US' tariffs. The US has already announced a 25% tariff on India and US President Donald Trump has threatened to raise this substantially. On Wednesday, the US announced an additional 25% tariff on India for its oil imports from Russia.

Malhotra said that growth is holding up and evolving on expected lines but termed the recent set of data as mixed and said growth is below the aspirational level. Asked what the aspirational level of growth is at the post-policy press conference Wednesday, Malhotra said "certainly more than 6.5%" and not the 8% he had mentioned in June.

RBI's growth projection is already higher than most professional forecasters and economic activity will most likely face further challenges from US tariffs. The governor said the 6.5% growth estimate, which was lowered from 6.7% in April, already factors in trade-related uncertainties, but it is difficult at present to predict the impact of the US' tariff announcements on India's GDP growth.

"While the RBI marked down current year inflation, our sense is that it does not have the same certainty on growth yet, and therefore left it unchanged at 6.5%," economists at HSBC said in a note. "It mentioned the uncertainty around US tariffs on India, and it also mentioned that some of the data in May and June have been more mixed than strong. That suggests to us that the RBI is waiting for more data on growth to trickle in."

Economists at Barclays, a bank, said incoming data is likely to fall short of the RBI's 'resilience' expectation and the MPC may deliver a final rate cut of 25 bps in October. "We have previously argued that the window for another cut is quite short, and if the RBI MPC doesn't cut in October, a cut in December will become challenging," Barclays said.

The RBI may have used the August meeting to take a breather to reflect on the impact of its actions so far, but Trump's tariffs could mean that the central bank may have missed the chance to lower rates entirely.  

Reported by Shubham Rana

Edited by Tanima Banerjee

FOCUS: BOND MKT FEELS TWICE-BITTEN AS RBI FORECASTS WIPE RATE CUT HOPES

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The bond market had expected to feel a lesser sting from the Monetary Policy Committee decision Wednesday after a stance change in June had signalled the rate-cutting cycle was at its tail-end. Though comments from the Reserve Bank of India Governor Sanjay Malhotra did not foreclose all hopes of a further cut in rates, bond traders expect yields to drift higher after the jolt Wednesday.

The MPC unanimously held the policy repo rate at 5.50% and retained a neutral stance. Traders had expected a rate cut with a signal that further moderation was not coming, or a pause with the RBI acknowledging risks to growth as a precursor to further rate cuts.

Instead, the central bank held pat on its GDP growth projection of 6.5% for 2025-26 (Apr-Mar), and forecast June quarter 2026 growth at a robust 6.6%. It brought down its CPI inflation estimate by 60 basis points for FY26 to 3.1%, it forecast Apr-Jun 2026 inflation at 4.9%, the highest expected in six quarters. The combinations of the year-ahead forecasts led the 10-year benchmark yield to jump the most in 14 months on Wednesday, and close at a four-month high of 6.42%.

"If the growth-inflation trajectory pans out as forecast, there's no chance that the RBI cuts rates," Rajeev Radhakrishnan, chief investment officer – Fixed Income at SBI Funds Management Ltd., said.

Fund managers said their expectations of capital gains from government bonds had virtually faded after the announcements Wednesday. Bankers said they would trim duration risk and try to limit mark-to-market losses, at a time when supply remains tilted to gilts maturing in 10 years or more until September-end. The constant weekly gilt supply pressures will "grind" yields higher, even with some support expected from foreign portfolio investors as US Treasury yields ease on hopes of US policy easing. The Indian 10-year gilt yield is seen in a range of 6.30-6.55% until the October policy statement, dealers said.

"Yields on government bonds will be in a range, maybe slightly on the higher side by 10 to 15 basis points," Poonam Tandon, chief investment officer at IndiaFirst Life Insurance, said. "There could be steepness in the yield curve especially after Wednesday's policy and neutral stance." Before Wednesday, the yield on the benchmark 6.33%, 2035 bond has not topped 6.40% since its issuance in early May, and the level was a key technical resistance and the upper end of the trading band over the past few months.

Tandon does not expect the spread of the 30-year benchmark gilt over the 10-year yield to widen much further from the current 67 basis points. Long-term bonds are seen out of favour across bank portfolios. Some investors do see both spreads over short-term bonds and absolute yields attractive to pick up the 30-50 year bonds to hold to maturity, as the bonds match their liabilities. Others such as Axis Mutual Fund said the current spreads may be a trap for traders as they cyclically widen at the end of a rate cut cycle.

ONE FOR THE GROWTH?

Despite the seeming reticence on further rate cuts, traders held on to the hope the MPC's rate-cutting cycle had not ended yet. The one-year overnight indexed swap rate, the barometer for domestic rate expectations, still showed around a 50% chance of a quarter-percentage-point rate cut by December, dealers said. Economists from ANZ Bank rolled over their rate cut call to October from August, while Goldman Sachs retained its Oct-Dec rate cut call despite risks. MUFG expects a total 50 bps of further rate easing by December.

"Forward-looking growth-inflation dynamics set a high bar for any future rate cuts," Vikas Garg, head – fixed income at Invesco Mutual Fund, said. "A small window for a possible final rate cut may open in the October or December policy meetings, but only if economic growth surprises meaningfully on the downside."

Growth data will now be even more closely watched by traders as it is seen as making or breaking the MPC's decision on rates. June quarter GDP growth figures will be published before the next policy statement on Oct. 1. However, the data is not expected to show a material crack in economic activity as the US tariffs will kick in only from Aug. 7. Moreover, the headline growth reading in the June quarter will benefit from the statistical effect of a low base and may even exceed the 6.5% growth projection as a low GDP deflator pulls up the real GDP growth, some dealers said.

Instead, the MPC may wait for the December policy to cut rates, which is where rate cut bets are coalescing. The central bank will be able to gauge the impact of its cash reserve ratio cuts and the government's tax cuts on demand during the festival season. It will also have the September quarter GDP growth readings. However, even the most optimistic traders, those who see 50 bps of further rate cuts in FY26, do not expect the 10-year gilt yield to fall to 6.00%.

"Overall, the possibility remains for a rate cut, but they may wait for the December policy to do it. By then, data should start showing a slowdown in growth," Ritesh Bhusari, deputy head of treasury at South Indian Bank, said.

BETTER COMMUNICATION

The RBI's commentary after the rate decision had a low bar to clear, after some in the market termed RBI governor's comments in June a "communication disaster". Bond yields had fallen sharply after the MPC in June cut the policy repo rate by 50 bps, against expectations of a 25-bps cut.

The MPC had changed the policy stance to 'neutral' from 'accommodative' and Malhotra had said there was very limited space to support growth further through rate cuts. Several traders had burnt their gilt fingers  after the topsy-turvy sequencing of the announcements in June, including cash reserve ratio cuts. Malhotra had then reiterated that monetary policy had done its bit to support growth.

"The market had an unreasonable expectation coming into the policy. The governor said that there was only a little space left, so why would he let go of it so quickly?" Bhusari asked.

To be sure, some traders were spooked by the RBI chief's focus on inflation curbing and the guidance of core inflation around 4% in 2025-26 (Apr-Mar). Even at the post-policy press conference, he spent more time on inflation than on exploring the risks to growth.

The future trajectory of rates remains uncertain, but traders retained their views after the governor avoided saying the policy easing cycle had ended. Malhotra said the MPC would take rate decisions from policy to policy, basis incoming data.

"Overall, the communication was much better and delivered what was needed after the frontloaded rate cuts till June," Radhakrishnan said. "Cycle reversal doesn't seem imminent and at the margin there may emerge space to cut by December."  

Reported by  Aaryan Khanna

Edited by Vandana Hingorani

FOCUS: EQUITIES LOOK PAST RBI STATUS QUO ON RATES, US TARIFF THREAT

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Wednesday was yet another muted session for Indian equities after the Reserve Bank of India's plain-vanilla monetary policy and no signal of a rate cut anytime soon. This not-so-surprising reaction of the market comes despite US President Donald Trump's new tariff threats to India on ground that India buys a lot of crude oil from Russia which the US is not really happy about. 

While it is natural for anyone to raise eyebrows about the widespread optimism related to near-to-medium term returns from the domestic market, experts continue to stand their ground; that India will be a favourite pick among emerging markets and that it is not a dead economy. "Services activity is showing signs of momentum, a good monsoon will help agriculture growth and rural demand. As a result we continue to remain positive on the growth outlook," said Sonal Badhan, economist at Bank of Baroda. 

Global markets, including India, have mostly recovered from "Trump tantrums", as analysts call it, and US tariffs are expected to have limited impact on India's economic growth. In April, domestic benchmark indices Nifty 50 and the Sensex had hit 10-month lows after Trump's tariff threats raised fears about a likely recession in the US and a spillover impact on the rest of the world. These indices have since risen smartly and are not expected to fall to these levels again in the near term even under a worst-case scenario, research analysts said. The Nifty 50 Wednesday closed at 24574.20 points and the BSE Sensex ended at 80543.99 points, up 13% from the low and still 6.5% off their all-time highs.

The RBI's Monetary Policy Committee Wednesday retained the policy repo rate at 5.50% after a higher-than-expected 50-basis-point cut at its meeting in June. Since Trump's announcement of a 25% tariff on India last week, there was chatter in the market that the apex bank has more room to cut rates to tackle the possible pressure on economic growth and inflation. But the RBI did not budge from its previous approach and retained the policy rate, stance, and GDP estimates. Though there was a slight disappointment in the equity market following the RBI's interest rate announcement, experts said the market has been surprisingly resilient compared to global peers. 

VALUATIONS, EARNINGS

Despite the Indian equity market valuation remaining higher than its long-term average, anlaysts are not worried about a major correction. The Nifty 50 is trading around 21.7 times the 12-month forward price-to-earnings, which is 5% higher than its long-period average. The optimism is supported by sustained inflow from domestic institutional investors, retail participants, and high net-worth individuals even though foreign institutional investors are offloading shares. Expectation of a better monsoon, benign inflation, and better demand in both urban and rural areas are also supporting the bulls, they said.

During Jan-Jul, foreign investors have net sold Indian equities worth INR 253 billion, compared with net purchases of INR 46 billion of shares in the year-ago period. Meanwhile, domestic institutional investors net bought domestic equities worth nearly INR 384 billion, double the INR 186 billion they had bought in the same period last year. 

However, not everyone is bullish about foreign inflows into Indian equities or about the current valuations. Foreign inflows are expected to be very modest in the coming months, said Dhananjay Sinha, chief executive officer and co-head of institutional equities at Systematix Group.

Earnings growth is roughly around 4-5% and it could be flat as well, he added. "So the thing is, if you do not have earnings growth, then valuation becomes more expensive...Ultimately growth has to happen. If growth doesn't happen, you may see market being very sideways," Sinha said. He expects better earnings growth only when commodity prices fall. 

TAN'TRUMPS'

US President Trump going back and forth with tariffs in the previous few months has increased the fog around his administrations' trade policies. "With Donald Trump, one can never be sure. He is one of the most inconsistent politicians," said V.K. Vijaykumar, the chief investment strategist at Geojit Financial Services, when asked about the chances of the US implementing the new tariff on India. 

While domestic growth can shrink a little due to tariff, Vijaykumar does not expect the GDP to fall below 6.2% in FY26, which is just a little lower than the RBI's estimate of 6.5%. "Even then, India will be by far the fastest growing large economy in the world and not a dead economy," hesaid. 

The US announced a 25% tariff and an additional penalty, which is still unspecified, on India last week. This week, he has threatened "substantial" tariffs on India for buying Russian crude oil. He has been pressurising India to reduce crude oil import from Russia. India currently meets about 35% of its crude oil requirement through Russian imports which are at a cheaper price. This is sharply higher than the 2.5% of total imports that Russian crude oil imports accounted for before it invaded Ukraine. Reducing cheaper oil imports from Russia can put pressure on India's exchequer and India has said it will prioritise what suits its "national interests and economic security".

While Trump claims that India is fuelling the "war machine" Russia, the US continues to buy certain goods such as uranium hexafluoride for its nuclear industry, palladium for its electric vehicle industry, and fertilisers as well as chemicals from the same Russia. "So this is pure double standards...That means his arguments are not based on science. It is based on ignorance about American trade with Russia," Vijaykumar of Geojit said.

Trade negotiations between the US and India are still going on. "...we can expect further reduction in the tariff burden. We expect GDP growth to average close to 7.5% in the next five years," Badhan of Bank of Baroda said. It is also unlikely that India will be able to provide a blanket-free access to Indian markets to the US, considering it has to protect its farm and dairy sectors. Larger concessions can be expected on imports of industrial goods, alcohol, cars, energy, and defence goods, Badhan said. 

Reported by Anjana Therese Antony

Edited by Akul Nishant Akhoury

INFORMIST POLL: MOST SEE MPC CUTTING REPO RATE OCT AMIDST TARIFF UNCERTAINTY

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The Reserve Bank of India's Monetary Policy Committee may lower the repo rate once again in October, after leaving it unchanged at 5.50% Wednesday, to support growth amidst an uncertain global environment, according to an Informist poll.

Of the 23 economists and market participants polled after Wednesday's interest rate decision, nearly 70% said they see a possibility of a rate cut in the December quarter, with nearly 40% expecting a cut in October. Only seven poll respondents said the MPC is unlikely to lower interest rates further. The MPC will next meet on Sept 29-Oct 1.

The MPC has lowered the repo rate by 100 basis points between February and June to 5.50%. On Wednesday, it left the repo rate unchanged and retained the neutral policy stance.

RBI Governor Sanjay Malhotra said that the current macroeconomic conditions, outlook, and uncertainties call for continuation of the policy repo rate. He said that the MPC will wait for further transmission of the frontloaded rate cuts to the credit markets and the broader economy.

The RBI lowered its CPI inflation forecast for 2025-26 (Apr-Mar) by 60 bps and retained the GDP growth projection of 6.5%. The central bank's growth forecast is higher than that of economists, who see growth around 6.2-6.3%.

"With the sharp downward revision of CPI inflation estimate, we believe the RBI MPC has maxed out on the room to witness any more surprises," Barclays said in a report. "However, on growth, we expect the incoming data to fall short of RBI's 'resilience' expectation. Accordingly, we expect the RBI MPC to deliver a final cut of 25 bps in October."

Risks to the growth forecast have also risen. Hours after Malhotra announced MPC's decision Wednesday, the US said it will impose an additional 25% tariff on import of goods from India for its oil trade with Russia. The US has already levied 25% reciprocal tariff on India, which economists project could hit GDP growth by 20-30 bps.

"Overall, our assessment is that RBI is likely too optimistic on its growth forecasts and by the same logic we also see RBI's inflation forecasts likely implying too strong demand-pull-related inflation," MUFG Bank Senior Currency Analyst Michael Wan said in a report. MUFG Bank sees the MPC opting for 25 bps rate cuts in October and December each.

However, not everyone expects more policy easing. Some economists said that monetary policy transmission of the 100-bps rate cuts so far is still incomplete and there is no urgency to ease further. "While in the current uncertain economic landscape, there is nothing called a zero-probability event, we think that the bar for any further rate cuts is high, and any further easing of monetary policy could be on the back of undershoot to growth expectations, given the tariff hit on India," economists at YES Bank said in a report.

The following are the expectations of economists and market participants on future interest rate cuts:

Reported by Shubham Rana and Pratiksha
Edited by Deepshikha Bhardwaj

RBI POLICY STORIES

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LEAVES REPO RATE UNCHANGED, CUTS FY26 INFLATION FORECAST TO 3.1%

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The Reserve Bank of India's Monetary Policy Committee Wednesday left the policy repo rate unchanged at 5.50% in a unanimous decision, the central bank Governor Sanjay Malhotra said. All six members of the committee also retained the 'neutral' policy stance.

The rate-setting panel's decision was on expected lines. Fourteen of the 17 economists polled by Informist had expected the MPC to hold interest rates at this meeting. The committee has lowered the repo rate by 100 basis points so far in 2025. It started lowering interest rates in February with a 25-bps cut, followed by another 25-bps cut in April and a larger-than-expected 50-bps reduction in June.

The RBI lowered its inflation projection for the current financial year by 60 bps to 3.1%. The central bank retained its growth projection for FY26 at 6.5%.

The MPC's decision to hold interest rates comes amidst a turbulent external environment and lingering risks to growth. US President Donald Trump has threatened substantially raising tariffs on India from the 25% already announced. 

Malhotra said growth remains robust and on expected lines though "below our aspirations". He added that uncertainties from tariffs are still evolving and the impact of the 100 bps rate cut since February is still unfolding on the economy .

"On balance, therefore, the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate of 5.5% and wait for further transmission of the front-loaded rate cut to the credit markets and the broader economy," the governor said. 

Malhotra said the outlook for FY26 inflation is more benign than expected in June. Inflation, however, is seen rising above 4% in 2026 as "unfavourable base effects, and demand side factors from policy actions come into play". The RBI projects CPI inflation at 4.4% in Jan-Mar and 4.9% in the June quarter next year.

CPI inflation fell to a 77-month low of 2.1% in June and is expected to hit a record low of 1.3% in July, as per an Informist poll. 

Malhotra said an internal working group – which reviewed the Liquidity Management Framework operative since February 2020 — has recommended continuation of overnight weighted average call rate as the operating target of monetary policy. It has also recommended to continue with the variable rate auction mechanism for repo and reverse repo operations of various tenors with the objective to maintain the operating target rate at the policy rate.

With the repo rate held at 5.50%, the Standing Deposit Facility remains at 5.25% and the Marginal Standing Facility and bank rate stay at 5.75%. Minutes of the August MPC meeting will be published on Aug. 20. The next meeting of the MPC is scheduled for Sept 29-Oct 1.  

Reported by Shubham Rana

Edited by Vandana Hingorani

CUTS Q2 CPI ESTIMATE BY 130 BPS TO 2.1%, FY26 BY 60 BPS TO 3.1%

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The Reserve Bank of India Wednesday slashed its headline inflation forecast for the quarter ending September by 130 basis points to 2.1% and lowered the projection for 2025-26 (Apr-Mar) by 60 bps to 3.1%. Governor Sanjay Malhotra said the central bank draws comfort from the inflation outlook for FY26 becoming more benign than expected in June, and added that high frequency indicators signal continuation of lower price momentum in food prices in July as well. The statistics ministry will release CPI data for July on Aug. 12.

"Large favorable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels, and comfortable buffer stocks of food grains have contributed to this moderation," Malhotra said in his fourth monetary policy statement on Wednesday. "CPI inflation, however, is likely to edge up above 4% in Jan-Mar of this (fiscal) year and beyond as unfavourable base effect and demand side factors from policy actions taken few months ago come into play," he said.

The Monetary Policy Committee noted that the average CPI inflation this year is expected to remain significantly below the target while growth has held up well with some pick-up expected in the coming festival season. Given these dynamics, the RBI's Monetary Policy Committee, as was widely expected, kept the policy repo rate unchanged at 5.50% while also keeping the policy stance unchanged at 'neutral'. The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path.

As per latest data, India's headline CPI inflation fell to a 77-month low of 2.10% in June largely because of a high base effect. The last time inflation was lower than the June print was in January 2019, when it was 1.97%. According to an Informist poll of 11 economists, retail inflation likely fell to a record low of 1.3% in July. At 1.3%, retail inflation would be the lowest in the current CPI series, which has data from 2014. The lowest CPI inflation print in the current series is 1.46% in June 2017. Headline inflation has also been below 2% only twice in this series.

The quarterly break-up of the central bank's latest inflation forecasts is as follows: 2.1% for Jul-Sept, 3.1% for Oct-Dec, and 4.4% for Jan-Mar. It had previously forecast inflation in the second quarter of FY26 to average 3.4% and the third quarter at 3.9%. Malhotra also projected inflation to average 4.9% in Apr-Jun of FY27. "The risks are evenly balanced," he said.

Food inflation, which has troubled the central bank for far too long, is expected to be benign and is the primary reason behind the softening of inflation outlook.

Although the central bank's rate-setting panel draws comfort from the room provided by a significant moderation in inflation, Malhotra said weather-related shocks pose risks to inflation outlook. "Barring any major negative shock to input prices, core inflation is likely to remain moderately above 4% during the year (FY26)", Malhotra added.

Core inflation--which excludes food and fuel items, whose prices can be volatile--rose to a 21-month high of 4.4% in June, from 4.3% in May. Malhotra said this spike was partly driven by gold prices, which economists expect remained steady in July, leading to moderation of core inflation to 4.2% last month.

It is safe to say that inflation is not a concern for the central bank presently. According to the central bank chief, despite a challenging external environment, the Indian economy is navigating a steady growth path with price stability. "Monetary policy has appropriately used the policy space created by the benign inflation outlook to support growth without compromising on the primary objective of price stability," Malhotra said. In 2025, the central bank's rate-setting panel has already cut the repo rate by 100 bps. 

Reported by Priyasmita Dutta

Edited by Ashish Shirke

HOLDS FY26 GDP GROWTH VIEW AT 6.5%, QUARTERLY VIEW ALSO RETAINED

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The Reserve Bank of India Wednesday 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. The RBI also gave a growth projection of 6.6% for the June quarter of FY27. 

The RBI's Monetary Policy Committee at its latest meeting decided to leave the policy repo rate unchanged at 5.50% and maintain the 'neutral' stance adopted in June. Describing the policy decision, RBI Governor Sanjay Malhotra said that the central bank, leveraging on the room provided by a significant moderation in inflation, took the measures to support growth.

"As for the growth outlook, the above-normal southwest monsoon, lower inflation, rising capacity utilisation and congenial financial conditions continue to support domestic economic activity," Malhotra said in his policy statement. The industrial growth is subdued and uneven across segments, pulled down by electricity and mining, Malhotra said. But that may be offset by steady services sector activity.

"The supportive monetary, regulatory and fiscal policies, including robust government capital expenditure, should also boost demand," Malhotra said. The RBI's growth projection for FY26 is in line with that of the finance ministry, which expects GDP to expand in the range of 6.3-6.8% in the current year. 

While the domestic conditions have been holding up and are in line with the RBI's assessment, there are potential external risks arising from geopolitical tensions, global uncertainties, and volatility in global financial markets, Malhotra pointed. "Prospects of external demand remain uncertain amidst ongoing tariff announcements and trade negotiations." 

The tariff announcements by the US, which is India's top export destination with a one-fifth share in total outbound shipments, pose substantial risks to India's external sector demand and growth. US President Donald Trump has already announced a 25% reciprocal duty on Indian goods in the US and has also said that he may raise the duty further to penalise New Delhi for its trade and strategic partnership with Moscow. 

Taking into account the favourable domestic conditions and uncertain global situation, Malhotra said that the risks to the RBI's GDP projections are "evenly balanced". "Despite a challenging external environment, the Indian economy is navigating a steady growth path with price stability." 

Reported by Krity Ambey

Edited by Akul Nishant Akhoury

SEE LIMITED IMPACT OF US TARIFFS ON INDIA INFLATION - MALHOTRA

==============================================================

Amid threats of more tariffs from the US, Reserve Bank of India Governor Sanjay Malhotra Wednesday said the impact of Washington's tariffs on India will be limited since New Delhi is "less dependent on the outside" insofar as inflation is concerned. Adding to Malhotra's remarks, Deputy Governor Poonam Gupta also said nearly half of India's inflation basket consists of food, which does not get negatively impacted directly by global developments.

"A significant part (of the CPI basket) also consists of non-tradables, which again, does not get impacted by global developments," Gupta said at the post-policy press conference. "So to that extent, a first-order direct impact of these evolving uncertainties on India's inflation is likely to be very, very limited."  

US President Donald Trump had on Jul. 30 announced 25% tariff on Indian goods shipped to the US, along with an additional unspecified penalty for India's procurement of military equipment and energy from Russia. The 25% tariff is set to kick in from Thursday. Earlier this week, he threatened to "substantially" hike the tariff on India for trading with Russia. It is unclear if he would further raise the 25% tariff or hike the penalty.

The exogenous risks to inflation come just when India's inflation has significantly softened with food prices staying benign, giving adequate policy room to the Monetary Policy Committee to support growth. Earlier in the day, the central bank slashed its headline inflation forecast for the quarter ending September by 130 basis points to 2.1% and lowered the projection for 2025-26 (Apr-Mar) by 60 bps to 3.1%.

The MPC noted that the average CPI inflation this fiscal is expected to remain significantly below the 4% target while growth has held up well with some pick-up expected in the coming festival season. Given these dynamics, the rate-setting panel kept the policy repo rate unchanged at 5.50% while also keeping the policy stance unchanged at 'neutral'.

Beyond tariffs, India presently faces Washington's clear displeasure with India's energy procurement from Russia, with whom India has maintained close economic ties for several decades now. While India has traditionally relied on Moscow for military equipment, New Delhi has become one of the biggest buyers of its crude oil since Russia's invasion of Ukraine in February 2022.

Analysts have said India may have to do away from Russian oil to escape Trump's repeated higher tariff threats which may significantly impact New Delhi's import bill and thereby add to inflationary pressures. Abating fears, Malhotra said the central bank does not see impact on inflation even if India's crude oil import mix changes. "Of course, crude is an important element in determining our inflation. But at the same time, let's keep two things in mind. It's not only Russian oil that we are taking. We are taking oil from many other countries to mix," he said. 

Further, Malhotra said the downward or upward impact of crude prices on inflation will depend on fiscal interventions by the government in the form of excise duty changes and tariffs, to mitigate any adverse shocks. The government has in the past cut excise duty on fuel to lower retail prices and insulate consumers from rising prices amid high inflation. 

Based on the current economic situation, the central bank Wednesday forecasted inflation to rise from January onwards, averaging 4.4% in Jan-Mar and 4.9% in Apr-Jun of FY27. The projection, however, does not take into account the possible change in weightage of the CPI basket, which the statistics ministry is working on. The Ministry of Statistics and Programme Implementation is undertaking a base revision exercise, revising the present base year of 2012 for CPI to 2024. Weights and item basket will also be changed during the process, derived from the Household Consumption Expenditure Survey FY23.

Speaking about the volatile food basket in the CPI basket and its transient impact on the headline inflation, Malhotra said that both core and headline inflation are important for the central bank, but the target of the MPC will certainly be headline inflation. In the past, there have been calls for India to target non-volatile core inflation rather than headline inflation. 

The central bank chief said while the inflation projection for Jan-Mar and Apr-Jun is significantly higher than the 2.1% projected for the ongoing September quarter and 3.1% for the December quarter, actual inflation can be downwards or upwards of the projections. "When we give projections, there are risks on both sides," he added. "I would certainly not venture to say that it cannot be lower than this."  

Regarding the flexible inflation targetting framework, which is up for review in FY26, Malhotra said RBI will release a discussion paper on the same seeking public comments. After receiving the comments, the central bank will advise the government on the framework, and the latter will take a final call on it, he said. 

The existing framework is set to lapse on Mar. 31, 2026. Under the monetary policy framework, the government has kept 4% as the CPI inflation target for Apr. 1, 2021 to Mar. 31, 2026, with the upper and lower tolerance limits of 6% and 2%, respectively. The government, in consultation with the RBI, determines the inflation target in terms of the CPI, once in five years.  

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

EXPECT GOVT TO TAKE FISCAL STEPS TO CONTAIN CRUDE OIL FALLOUT

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The Reserve Bank of India does not see a major impact on inflation from any changes in global crude oil prices and expects the government to take necessary steps to mitigate price shocks, if any. Speaking at the press conference after the Monetary Policy Committee meeting Wednesday, Governor Sanjay Malhotra said India imports oil from various countries, including Russia. 

"It (the impact of oil price movements) will depend on how much of its impact downwards or upwards is actually taken by the government in the form of excise duties and other tariffs," the RBI chief said. "As of now, we do not see any major impact because of this on inflation, because I think the government will take an appropriate decision on the fiscal side in case there is any shock over there. It's not only Russian oil that we are taking. We are taking oil from many other countries to mix."

On Tuesday, Informist Media reported, quoting a senior government official, that India will continue to procure Russian oil, given the price benefit. The official's comments came after US President Donald Trump's repeated, belligerent threat to raise tariffs on India for continuing trade with Russia. On Tuesday, Trump told CNBC in an interview that he would "substantially" raise tariffs on India in the next 24 hours for New Delhi's crude oil purchases from Moscow.

Trump has been speaking repeatedly about "raising" tariffs. It is unclear if he would further raise the tariff he announced on Indian goods last week or levy a penalty over and above the tariff for continuing trade with Russia. Trump had Tuesday announced a 25% tariff on Indian goods shipped to the US, along with an additional unspecified penalty for India's procurement of military equipment and energy from Russia. The 25% tariff is set to kick in Thursday. 

On Wednesday, the Reserve Bank of India's Monetary Policy Committee left the policy repo rate unchanged at 5.50% in a unanimous decision and retained the stance as 'neutral'. 

Reported by Vaishali Tyagi

Edited by Deepshikha Bhardwaj

TOUGH TO PREDICT US TARIFF HIT ON GDP; MONITORING DATA - GOVERNOR

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While the Reserve Bank of India's growth estimates for 2025-26 (Apr-Mar) already factor in some global uncertainties, it is difficult at present to predict the impact of the US' tariff announcements on India's GDP growth, the central bank Governor Sanjay Malhotra said Wednesday. The RBI is maintaining a close vigil on incoming data but as of now there is not enough data to revise the estimates, Malhotra added.  

Malhotra's comments come as Indian exporters brace for 25% reciprocal tariff on Indian goods in the US to be effective from Thursday. The tariff announcements by the US, which is India's top export destination with a one-fifth share in total outbound shipments, pose substantial risks to India's external sector demand and growth. Economists have already projected a downward revision of 20-30 basis points to GDP growth for the current financial year. 

Meanwhile, the RBI Wednesday retained its GDP growth estimate for FY26. "We had already reduced our forecast, which was earlier 6.7% to 6.5%," Malhotra said. "So, some of the global uncertainties have already been factored in the revised growth forecast." RBI had in April cut its GDP growth estimate for the year to 6.5% from 6.7%. 

"However, there is still a lot of uncertainty, as was mentioned in my statement, and it is really very difficult to predict as to what the impact will be," Malhotra said at the post-policy press conference. "Going forward, as we have mentioned, we will maintain a very very close vigil on the incoming data and take a call. As of now, we do not have sufficient data to revise our GDP forecasts."

The RBI would wait for another two months to gauge how the economy shapes up once the transmission of 100-basis-point policy repo rate cut is completed, Malhotra said, while assuring that the central bank would continue to do whatever is required to support growth and maintain price stability. "We have taken a number of measures to support growth. It is not only on the monetary policy--liquidity side, even on the prudential regulation side, we have taken measures," Malhotra mentioned. 

The RBI cut the repo rate by 100 bps between February and June. At the August meeting, the Monetary Policy Committee Wednesday decided to keep the repo rate unchanged at 5.50% and maintain the 'neutral' stance adopted in June. 

It is also too early to guess the likely changes to the inflow of foreign investment into the Indian financial markets due to the evolving dynamics between New Delhi and Washington, post US President Donald Trump's tariff announcement on Indian goods, according to Malhotra. The Indian external affairs ministry had issued a strong statement against Trump on Monday after the latter's reiteration of raising tariffs on India for its strategic partnership with Russia. 

"We are quite confident that our reserves - we have 11 months of merchandise imports reserves," Malhotra said. "And so, we are very confident of meeting whatever needs are there from the external sector." The RBI had $688.9 billion in foreign exchange reserves in the week ended Friday. 

The RBI is hopeful of an amicable conclusion of trade negotiations between India and the US, Malhotra said. Both sides have held five rounds of negotiations for a trade deal so far. The next round of discussions is scheduled Aug. 25 in New Delhi. The Indian exporters see the trade deal as a cushion against Washington's reciprocal tariffs.  

At the press conference, while responding to a question on Trump's remark that the Indian economy is "dead", Malhotra mentioned that India's contribution to global GDP growth is 18% compared to the US' contribution of 11%. 

Malhotra mentioned that India's GDP, in the past, has grown at an average of 7.8%. "So, certainly, we should aspire for a growth rate higher than 6.5%," Malhotra said.  

Reported by Krity Ambey

Edited by Vandana Hingorani

MANY PM JAN DHAN ACCOUNTS DUE FOR KYC; BANKS ORGANISING CAMPS

=============================================================

A large number of savings bank accounts under the Pradhan Mantri Jan Dhan Yojana are due for know-your-customer updates as the scheme completes 10 years, Reserve Bank of India Governor Sanjay Malhotra said while announcing the outcome of the Monetary Policy Committee's meeting Wednesday. To facilitate this, banks are organising camps at the panchayat level from Jul. 1 to Sept. 30, providing services at the customer's doorstep, he said.

These camps will offer services, including new account opening, re-KYC, micro-insurance, and pension schemes, with a focus on financial inclusion and redressing customer grievances, the governor said.

In July, the Department of Financial Services had advised banks to contact account holders to make their accounts operative to deepen the adoption of the Pradhan Mantri Jan Dhan Yojana, Jeevan Jyoti Bima Yojana, Atal Pension Yojana, and other welfare schemes. 

The government introduced the Pradhan Mantri Jan Dhan Yojana in August 2014 to promote financial inclusion. The scheme provides universal banking services for every unbanked household. It offers account holders advantages such as a bank account without having to maintain a minimum balance, free-of-cost RuPay debit card with inbuilt accident insurance of INR 200,000, and an overdraft facility of up to INR 10,000.

As of Jun. 25, the Pradhan Mantri Jan Dhan Yojana had deposits of INR 2.60 trillion, with 556.9 million bank accounts under the scheme.  

Reported by Vaishali Tyagi

Edited by Rajeev Pai

RISE IN UNSECURED LOANS CURBED, MICROFIN IMPORTANT, SAYS GOVERNOR

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The sharp rise in unsecured loans, particularly in the microfinance sector, seen earlier this year has reduced, Reserve Bank of India Governor Sanjay Malhotra told a press conference after the monetary policy announcement Wednesday. However, microfinance loans are important for the economy as they serve the people at the bottom of the pyramid, he added.

"Unsecured personal loans are being taken by people who are taking loans up to INR 10,000, INR 20,000, INR 50,000, and that is a very important part of our stakeholders," Malhotra said. "Approximately 8 crore (80 million) people are MFIs (borrowers from microfinance institutions), although the (total) amount is only INR 3.75 lakh crore (INR 3.75 trillion). So, this is a very important part of our stakeholders and whatever we have to do to ensure their financial inclusion, like the camps we are setting up, we will continue to work on that."

Despite some month-on-month or year-on-year moderation, the governor said the health of long-term housing finance is good. India's housing credit remains strong, growing at 14%, well above the average bank credit growth rate of 10%, the governor said. "It's important to look at data regularly, at a micro level--month-to-month or quarter-to-quarter," he said. "But one must be cautious when extracting insights from that. It's the long-term trends that carry more meaning." The RBI has slashed the policy rate by a cumulative 100 basis points so far in 2025 to support domestic growth, but there is a lag in the cuts translating into credit growth.

The governor also said the RBI's artificial intelligence tool to hunt mule accounts was working well, because of which the amount involved in financial frauds is not rising on an annual basis. "Last year (financial year 2024-25), the financial frauds that we have seen, if you look at the total amount, it is almost the same as it was in 2023-24. It has not increased much. So, if you look at each transaction, there is a reduction in it. So, this is a matter of satisfaction for us," Malhotra said. Fifteen banks have joined the mule hunting tool so far, he said.

On reports of banks charging fees for transactions on the Unified Payments Interface, the governor said he could not respond to specific issues related to any particular entities. However, he clarified that he never said the Unified Payments Interface cannot be free forever.

The governor also said banks have enough funds to meet the needs of the economy, be it corporations, households, or the government. There is certainly a shift from banking to equity, from debt to equity, he said. "I think that is on the whole a healthy trend for any economy," Malhotra said. "As it grows, there should be a good mix, and I think we are moving towards that. We should not be unduly concerned about that."

Reported by Kabir Sharma and Vidhushi Rajpurohit

Edited by Rajeev Pai

LARGE COS RELYING MORE ON MKT, LESS ON BANKS TO SOURCE FUNDS

============================================================

Large Indian corporates are increasingly relying on market-based instruments such as commercial paper and corporate bonds to source funds, reducing their reliance on bank credit, Reserve Bank of India Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee meeting on Wednesday.

The total flow of resources from non-banks increased to INR 16.8 trillion in 2024-25 (Apr-Mar) from INR 12.5 trillion in FY24 while the pace of bank credit to the industry slowed, data from the RBI showed. Bank credit recorded a growth of 9.8% as on Jul. 11 compared to 14.0% a year ago.

Despite the slowdown in bank credit, the total flow of financial resources remained at almost similar levels in the current financial year compared to the corresponding period of last year. Issuances of commercial papers by non-financial entities increased to INR 780 billion in Apr-Jun, compared to INR 300 billion a year ago. Corporate bonds issued by non-financial entities increased to INR 950 billion in the same period compared to INR 90 billion a year ago.

The comfortable liquidity in the banking system has reinforced transmission of the policy repo rate cuts to the money, bond and credit markets during the current easing cycle. In the credit market, the weighted average lending rate of scheduled commercial banks declined by 71 basis points for fresh rupee loans and by 39 bps for outstanding rupee loans from February to June. On the deposit side, the weighted average domestic term deposit rate on fresh deposits moderated by 87 bps during the same period. "...the transmission to lending rates has been broad based across sectors," the governor said. 

Reported by Kabir Sharma

Edited by Ashish Shirke

TO EXPAND RBI RETAIL DIRECT SCOPE TO ENABLE INVEST IN T-BILLS

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The Reserve Bank of India will widen the scope of the central bank Retail Direct platform which will provide retail investors an access to invest in treasury bills through systemic investment plans. The prospect to expand the platoform's functionality was one of the three consumer-centric announcements which Governor Sanjay Malhotra detailed while announcing the outcome of the monetary policy meeting on Wednesday.

In November 2021, the central bank had launched the RBI retail direct facility where individual investors can make an account and directly invest in government securities and sovereign gold bonds. The RBI has also launched the 'Retail Direct' mobile application on May 28, 2024, a portal for retail investors to conveniently invest in government securities.

Reported by Vidhushi RajPurohit

Edited by Akul Nishant Akhoury

NORMS FOR SETTLEMENT OF CLAIMS IN BANK ACCTS TO BE STANDARDISED

===============================================================

The Reserve Bank of India aims to standardise the procedure for settlement of claims for bank acount deposits and articles kept in safe custody or safe deposit lockers of deceased bank customers, Governor Sanjay Malhotra said in his statement at the outcome of the RBI's Monetary Policy Committee meeting. The move is expected "to make settlement more convenient and simpler", Malhotra said.

Balances in savings and current accounts that remain inoperative for 10 years, or term deposits not claimed within 10 years from the date of maturity, are classified as unclaimed deposits.

The RBI in a notification in January 2024 said, "The credit balance in any deposit account maintained with banks, which have not been operated upon for ten years or more, or any amount remaining unclaimed for ten years or more are required to be transferred by banks to Depositor Education and Awareness Fund maintained by the Reserve Bank of India." The fund is utilised for promotion of depositors' interest and for other purposes which may be necessary for promotion of depositors' interest.

Banks held INR 670 billion worth of unclaimed deposits as of Jun. 30, Minister of State for Finance Pankaj Chaudhary said in a written reply to a qustion in the Lok Sabha at the end of July. Out of INR 670 billion, public sector banks held INR 583.30 billion unclaimed deposits while private banks had INR 86.74 billion, Chaudhary said. 

In a release in June, the central bank issued revised instructions for banks on settlement of unclaimed deposits with immediate effect. The measures included faciltities for updation of know-your-customer details for activation of inoperative accounts and unclaimed deposits at all branches. The RBI also instructed banks to provide for updation of KYC in such accounts and deposits through a video-customer identification process. 

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

TOP 10 ANNOUNCEMENTS BY GOVERNOR MALHOTRA AFTER MPC MEET

========================================================

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

INTEREST RATES

The Reserve Bank of India's Monetary Policy Committee Wednesday left the policy repo rate unchanged at 5.50% in a unanimous decision. Consequently, the standing deposit facility rate under the liquidity adjustment facility also remains unchanged at 5.25% and the marginal standing facility rate at 5.75%. 

POLICY STANCE

The MPC unanimously decided to continue with the 'neutral' stance and resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path.

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. The RBI also released a growth forecast for the Apr-Jun (2026-27), projecting it at 6.6%. 

INFLATION

The RBI lowered its inflation projection for the FY26 by 60 bps to 3.1%, with Jul-Sept at 2.1%, Oct-Dec at 3.1%, and Jan-Mar at 4.4%, with risks evenly balanced. For the first time, RBI gave its CPI inflation projection for Apr-Jun (2026-27) and projected it at 4.9%. 

LIQUIDITY

System liquidity, as measured by the net position under the Liquidity Adjustment Facility, has been in surplus, on an average of INR 3 trillion per day since the last MPC, as compared to an average daily surplus of INR 1.6 trillion during the previous two months. Going ahead, as the CRR cut announced in the last policy comes into effect in a staggered manner beginning September, it would further support liquidity conditions.

The comfortable liquidity in the banking system has reinforced transmission of the policy repo rate cuts to the money, bond and credit markets during the current easing cycle. In the credit market, the weighted average lending rate of scheduled commercial banks declined by 71 basis points for fresh rupee loans (of which 55 bps is due to interest rate reduction) and 39 bps for outstanding rupee loans from February to June. On the deposit side, the weighted average domestic term deposit rate on fresh deposits moderated by 87 bps during the same period.

LIQUIDITY MANAGEMENT FRAMEWORK

An internal Working Group has reviewed the RBI's Liquidity Management Framework, in place since February 2020, and submitted its report. The report will be published on the RBI website for public consultation soon. 

The Working Group has recommended continuing with the overnight Weighted Average Call Rate as the operating target of monetary policy. Additionally, the group recommened retaining the variable rate auction mechanism for repo and reverse repo operations across various tenors, aiming to keep the operating target rate aligned with the policy rate.

EXTERNAL SECTOR

India's share in world services exports has risen from about 2% in 2005 to 4.3% in 2024, driven by strong software and business services exports. Robust services exports coupled with strong remittance receipts are expected to keep current account deficit within the sustainable level during the current financial year. On the external financing side, gross foreign direct investment to India remained strong during Apr-May.

As of Aug. 1, India's foreign exchange reserves stood at $688.9 billion, Overall, India's external sector remains resilient. The RBI remains confident of meeting external financing requirements comfortably.

FINANCIAL STABILITY

The system-level financial parameters related to capital adequacy, liquidity, asset quality and profitability of banks continue to remain healthy. Similarly, the system level parameters of non-banking finance companies too are sound, with adequate capital position and improved gross non-performing asset ratio. 

BANKING INITIATIVES 

Banks are launching a doorstep banking initiative, organizing camps at the Panchayat level from Jul. 1 to Sept. 30. These camps will offer services including new account openings, re-KYC, micro insurance, and pension schemes, with a focus on financial inclusion and customer grievance redressal.

RETAIL-DIRECT PLATFORM

The RBI will standardise the procedure for settling claims related to bank accounts, safe custody items, and safe deposit lockers of deceased customers, aiming to make the process more convenient and straightforward.

The RBI is enhancing its Retail-Direct platform to allow retail investors to invest in treasury bills via systematic investment plans, expanding the platform's functionality.  

Compiled by Vaishali Tyagi

Filed by Vandana Hingorani 

WORKING GROUP MOOTS KEEPING WEIGHTED AVG CALL RATE OPERATING AIM

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The Reserve Bank of India's working group set up to discuss the new liquidity management framework has discussed retaining the weighted average call rate as the operating target for the monetary policy, Governor Sanjay Malhotra said while detailing the outcome of the monetary policy meeting on Wednesday. Malhotra said that the report on the working framework will be uploaded on the RBI website shortly.

"The weighted average call rate (WACR) is found to be highly correlated with other overnight money market rates (TREPS and Market Repo) in the collateralised segments," Malhotra said. "Further, WACR is also found to be effective in transmitting signals to other money market instruments across maturities. Therefore, the group has recommended continuation of overnight WACR as the operating target of monetary policy," he said.  

The working group has also recommended continuing with the variable repo rate auctions and reverse repo rate auctions of various tenors with the objective of maintaining the operating target rate at the policy rate, the governor said. 

The Reserve Bank of India's Monetary Policy Committee Wednesday left the policy repo rate unchanged at 5.50% in a unanimous decision, the central bank Governor Sanjay Malhotra said. All six members of the committee also retained the 'neutral' policy stance.

In response to the cumulative policy repo rate cut of 100 basis points in the current easing cycle, the weighted average call rate has moderated by 108 bps as of Monday. The current Liquidity Management Framework has been operative since February 2020 and since it has been five years, a change was imminent, the governor said. 

Reported by Kabir Sharma

Edited by Akul Nishant Akhoury

FX RESERVES AT $688.9 BLN; CAN COVER 11 MOS OF IMPORTS - MALHOTRA

=================================================================

India's foreign exchange reserves fell by $9.29 bln to a 10-week low of $688.9 billion in the week ended Aug. 1, Reserve Bank of India Governor Sanjay Malhotra said while announcing the outcome of the three-day Monetary Policy Committee meeting Wednesday. Malhotra said the reserves are sufficient to cover more than 11 months of merchandise imports. "Overall, India's external sector remains resilient. We remain confident of meeting our external financing requirements comfortably", Malhotra said. 

He also added that gross foreign direct investment to India remained strong during April and May in 2025-26 (Apr-Mar). However, net foreign direct investment moderated during the same period owing to higher outflows. Net FDI inflows shrank by 2.2% to $3.9 billion in April-May from $4.0 billion a year ago. Foreign portfolio investment inflows, too, remained strong. However, net FPI to India recorded outflows of $0.8 billion so far in the financial year, he said. During the period from April to July, net inflows stood at $2.6 billion in the equity market while the debt market witnessed a net outflow of $3.5 billion. 

External commercial borrowings witnessed higher net inflows in comparison to the previous year, Malhotra said. Net inflows under external commercial borrowings rose to $3.5 billion in the June quarter of FY26, lower $1.6 billion a year ago. Inflows under non-resident deposits also remained positive despite witnessing some moderation as net inflow of NRI deposits fell to $1.9 billion in April-May of FY26 from $2.8 billion for the corresponding period a year ago. 

On the external sector, India's current account deficit moderated to 0.6% of the GDP in FY25 from 0.7% of GDP in FY25, driven by robust services exports and strong remittance receipts despite a higher merchandise trade deficit. Merchandise trade deficit further widened in the June quarter. As per provisional estimates, India's services exports expanded by 10.1% in the quarter ended June while services imports rose by 1.5% for the same period. Net services exports grew by 20.7% for the same period. 

"Robust services exports coupled with strong remittance receipts are expected to keep CAD (current account deficit) within the sustainable level during the current financial year," Malhotra said.

Reported by Gowri Lakshmi

Edited by Deepshikha Bhardwaj
 

End

US$1 = INR 87.73

Compiled by Shivaji Jagatap and Mayur Nijap

Filed by Tanima Banerjee

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