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Informist, Wednesday, Oct. 1, 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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FOCUS: MPC OPENS DOOR TO RATE CUT BUT BOND TRADERS AVOID RUSHING IN
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MUMBAI – The Reserve Bank of India's commentary at the monetary policy announcement Wednesday was exactly what the bond market had been looking for for four months, and was received warmly. By just acknowleding there is space for additional monetary easing, the RBI is likely to have ensured gilt yields will drift lower in the next two months. Still, bond traders remain sceptical that the rate cut is as much of a slam dunk as some analysts feel. 

On Wednesday, the Monetary Policy Committee unanimously held the policy repo rate at 5.50% for the second straight meeting and kept the monetary policy stance at 'neutral'. Howevever, two external members said they favoured changing the stance to 'accommodative', presumably as a guide to further rate cuts. Combined with the MPC resolution that acknowledged more policy space to support growth, traders felt the members were in lockstep with their reading of recent and future macroeconomic indicators.

At the last meeting, RBI Governor Sanjay Malhotra had spooked the bond market by highlighting relatively high inflation and firm growth in Apr-Jun 2026 as a deterrent to further policy easing. This time, both Governor Malhotra and Deputy Governor Poonam Gupta stressed that the central bank had to cut its GDP growth forecasts for Oct-Dec and beyond due to the impact of the 50% US tariff on Indian goods, which had not been announced at the time of the August MPC meeting. This about-turn was welcomed by traders.

"The RBI MPC policy today seems to suggest a wait-and-watch approach to the evolving macro environment and future economic data," said Sameer Karyatt, executive director and head of trading at DBS Bank India. "The policy suggested that there was enough space available for policy action if required to support economic growth. The market yield might react to the dovish policy over the next few days, with future rate cuts getting priced into the curve."

OUT OF RUNWAY?

Some caution comes due to the bevy of data points between now and the next MPC decision on Dec 5. For one, slowing GDP growth is seen as a key determinant to whether the MPC will pull the trigger or not, and the September quarter reading is due a week before the monetary policy review. Changes related to the Goods and Services Tax will pull down inflation immediately, but the impact seems factored into the RBI's new projections. In fact, weather-related disruptions may threaten the benign run of food inflation, especially at a time when the projections assume the purple patch will continue – headline CPI inflation is seen at 1.8% in Oct-Dec. 

In fact, some dealers were more worried about CPI inflation in 2026-27 (Apr-Mar) than in FY26, the outlook for which was cut by 50 bps to 2.6% Wednesday. The forward-looking MPC may avoid cutting rates with inflation having bottomed out, according to the projections, then rising to 4.0% in Jan-Mar and then averaging 4.5% in FY27, according to the RBI's Monetary Policy Report. Even at the current repo rate of 5.50%, the real policy rate on a one-year ahead basis is only 1.0%, suggesting accommodation, dealers said. 

These factors have led to a situation where there is no hurry to position for a rate cut by stocking up on bonds and only a handful of trading houses seem to have a strategic call on the 10-year yield moving down materially from current levels by March. Some banks are optimistic on the five-year bond outperforming its peers as the market's hopes crescendo towards further policy easing, even if it doesn't come.

In fact, the positive market reaction Wednesday was largely led by the RBI governor's nudge rather than anything spectacular in the policy. Malhotra said at the post-policy press conference that the 10-year gilt yield should fall further from the then-prevailing levels of around 6.60% and that the RBI had considered steps to bring down bond yields. Such was the impact of his remarks that the benchmark yield ended at 6.52% on Wednesday, with the bond having its best day in over a month. There was some speculation that the comment could be hinting at open market bond purchases, though this was rubbished by most traders as durable liquidity remains in a surplus of nearly INR 5 trillion and scheduled infusions will add to that pile until the end of November. 

"The policy tone itself seemed to be neutral and the market has taken comfort from the governor's statement that bond yields could be lower," said Sudarshan Nambiar, head of trading at YES Bank. "The MPC seems to be aligning to the market's reading on data dependence. The inflation forward projections make it difficult to expect a rate cut going ahead."

SUPPLY-DEMAND PANGS

Long-term investors too such as life insurers don't seem in a hurry to lock in yields, though bonds maturing in 30-50 years also felt the positive impact of the governor's remarks. Borrowing by states, which has unexpectedly coalesced into long-term bonds, has also risen and sponged away demand that may have otherwise been allocated to the Centre's offering. State bond issuance in Apr-Sept was 30% higher on year at 5.0 trillion and the market expects demand-supply dynamics across these offerings to play a key role in anchoring benchmark gilt yields.

Add to that the higher share of supply in the 10-year gilt in the borrowing calendar for the second half of the fiscal, and the optimism around the benchmark yield starts to fade. In Oct-Mar, 28.4% of gilt issuances will be through the sale of 10-year paper, higher than the 26.2% share in Apr-Sept. Consequently, traders see the 10-year gilt yield in a 6.40-6.65% band until the December policy.

"The dovish comments without a rate cut give the market hope and something to play for in the next two months," said Poonam Tandon, chief investment officer at IndiaFirst Life Insurance, said. "Still, supply will constrain the move downward in yields and I can't say there is any urgency to lock into current yields, but that will be dependent on the inflows for each market participant. However, upward movement in yields is limited."

All in all, the bond market considered the October policy pragmatic and balanced, even as some burnt their fingers on their bets of a rate cut Wednesday. Going ahead, traders just don't feel the rate cut is enough of a certainty yet and also fear the RBI's more positive communication may lull them into a false sense of security on reading the warning lights on the macroeconomic data.  End

By Aaryan Khanna

Edited by Avishek Dutta

INFORMIST POLL: MOST SEE MPC CUTTING RATE BY 25 BPS DEC ON TARIFF WORRIES
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After leaving the door ajar on Wednesday, the Reserve Bank of India's Monetary Policy Committee may lower the repo rate in December to support growth amid risks from tariff-related uncertainties, according to an Informist poll.

Of the 19 economists and market participants polled after Wednesday's interest rate decision, nearly 58% said they see a 25-basis-point rate cut in December. Rest of the poll respondents expect the MPC to lower interest rates going ahead but did not specify a timeline for the same. Morgan Stanley expects the committee to slash rates by 25 bps each in December and February. The MPC will next meet on Dec. 3-5.

The MPC has lowered the repo rate by 100 bps between February and June to 5.50%. On Wednesday, it left the repo rate unchanged and retained the neutral policy stance for the second consecutive meeting.

RBI Governor Sanjay Malhotra said the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out and the trade related uncertainties are still unfolding, adding that the MPC considered it prudent to wait for the impact of policy actions to play out and greater clarity to emerge before charting the next course of action. However, he said that "the current macroeconomic conditions and the outlook has opened up policy space for further supporting growth."

Most poll respondents said a benign inflation outlook may give the rate-setting panel comfort to go for a rate cut. The RBI lowered its inflation projection for 2025-26 (Apr-Mar) by 50 bps to 2.6% while also cutting its forecast for Oct-Dec by 130 basis points to 1.8%.

"Higher sowing, reservoir levels and buffer stocks should provide comfort on the food inflation front. Revised GST rates should also result in reduction in prices of several items in the CPI basket. Hence, core inflation should also remain contained despite higher gold and silver prices," ICICI Bank said in a note.

Further, some poll respondents said that there may be a case for one more rate cut after December, depending on how the US tariff situation evolves. "If trade related uncertainties in the form of higher US tariffs persist beyond 2025, the resulting downside risks to growth, could open up room for an additional 25 bps rate cut in 2026," Goldman Sachs said in a note.

The US has slapped an additional 25% punitive tariff on Indian goods, on top of a 25% reciprocal tariff, citing New Delhi's continued purchases of Russian crude oil. The two sides have re-started negotiations on a bilateral trade agreement and Commerce Minister Piyush Goyal last month said the first tranche of the deal could be signed by November.

The central bank raised its GDP growth projection for FY26 to 6.8% from 6.5% projected earlier, but slashed its projections for the remaining quarters of the current fiscal year as well as for Apr-Jun of FY27. 

Most poll respondents pointed out that the fact that two external members of the MPC, Nagesh Kumar and Ram Singh, were of the view that the stance be changed to accommodative, is also somewhat indicative of scope for further easing.    

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

Reported by Pratiksha

Edited by Akul Nishant Akhoury

RBI POLICY STORIES

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TO BRING REGIONAL, RURAL CO-OP BANKS UNDER OMBUDSMAN SCHEME

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The Reserve Bank of India Wednesday announced a plan to bring state co-operative banks and district central co-operative banks within the scope of the RBI Ombudsman Scheme that was launched on Nov. 12, 2021, it said in the statement for developmental and regulatory policies. The move is to enable customers of rural co-operative banks, hitherto with the National Bank for Agriculture and Rural Development, to access the ombudsman mechanism.

The RBI has also decided to review the scheme after taking into account the operational experience, stakeholder feedback, and global practices. The review seeks to enhance transparency, simplify procedures, and reduce timelines to ensure quicker, fairer, more effective resolution, it said. The RBI will release a draft scheme on its website shortly to seek feedback from stakeholders.

The central bank had introduced the integrated ombudsman scheme to provide customers of regulated entities a speedy, cost-effective, alternative grievance redress mechanism. The regulated entities covered under it are commercial banks, regional rural banks, scheduled primary urban co-operative banks, non-scheduled primary urban co-operative banks with deposits of INR 500.00 million and above, selected non-banking finance companies, and credit information companies. 

The RBI's Monetary Policy Committee, in a unanimous decision Wednesday, left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its "neutral" policy stance.  End

Reported by Muskan Lodhi

Edited by Rajeev Pai

GOVERNOR SAYS WILL TAKE APPROPRIATE STEPS TO LIMIT RUPEE'S FALL

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The rupee has depreciated recently but the Reserve Bank of India has been keeping a close watch on it, Governor Sanjay Malhotra told a press conference after the Monetary Policy Committee meeting outcome Wednesday. The governor said the central bank will take appropriate steps as warranted to limit the fall of the currency.

The rupee has been on a downward trend in recent times. It hit a record low of 88.8025 a dollar Tuesday. The central bank has been intervening in the currency market for the past two weeks to protect the rupee from breaching the psychologically crucial 89.00-a-dollar level. As of Sept. 26, the apex bank had sold $5 billion-$6 billion in order to protect the rupee from runaway depreciation.

Sometimes, public opinion gets factored in the price of rupee, but the central bank does not push or target any level, the governor said. "We do not target any price band; our effort has been to manage any undue volatility and we will continue to do so," he said. 

The central bank has sufficient foreign exchange reserves, so there is no reason for the depreciation of the rupee to harm any public sentiment, he said. On Sept. 26, the country's foreign exchange reserves stood at $702 billion. The central bank aims to remove undue, abnormal volatility in the rupee, Malhotra said. 

The apex bank is still looking at what will be the benchmark for the rupee reference rate, Deputy Governor T. Rabi Sankar said. The RBI's Monetary Policy Committee, in a unanimous decision, left the policy repo rate unchanged at 5.50%. The committee also retained its "neutral" policy stance.  End

Reported by Rati Chaphekar

Edited by Nishant Maher

AUTHORISED DEALER BKS TO LEND IN RUPEES TO RESIDENTS OUTSIDE INDIA

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Authorised dealer banks in India and their overseas branches may be permitted to lend in rupees to persons residing in Bhutan, Nepal, and Sri Lanka, Reserve Bank of India Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee meeting on Wednesday. "...it is essential that INR liquidity is made available and accessible to residents of other countries," the RBI said. 

The amendment to the Foreign Exchange Management Act also includes any bank in these jurisdictions, to facilitate cross-border trade transactions. The amendments will be notified shortly, the RBI said. 

In a unanimous decision on Wednesday, the RBI's Monetary Policy Committee left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance. Malhotra noted that the decision was a fallout of the inflation outlook turning out to be more benign than previously projected. 

The RBI also proposed to include select currencies of India's major trading partners in the list of reference rates published by Financial Benchmarks India Ltd. At present, Financial Benchmarks India publishes reference rates for US dollar, euro, sterling pound, and Japanese yen against the rupee. These rates are widely used for settlement of forex transactions, including derivatives. "This is expected to further deepen the onshore forex market and encourage banks to quote directly in a larger set of currency pairs, thus eliminating the need for multiple currency conversions and making trade more efficient," the RBI said. 

In order to expand investment opportunities in India for special rupee vostro account holders, the RBI has now decided to permit balances of these accounts to be invested in corporate bonds and commercial papers. The revised regulations will be notified shortly, the RBI said.  End

Reported by Kabir Sharma

Edited by Avishek Dutta

PROPOSES TO STRENGTHEN, IMPROVE INTERNAL OMBUDSMAN SYSTEM

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The Reserve Bank of India has proposed measures to strengthen and improve the efficacy of the internal ombudsman mechanism in select regulated entities, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee's meeting Wednesday. The amendment will enable an independent apex-level review of complaints that are being rejected by the regulated entities. A draft of the master direction, outlining these revisions, is being released shortly for public feedback.

To enhance the effectiveness of the internal ombudsman mechanism, it is proposed that internal ombudsman be granted compensation powers and allowed direct access to complainants. Furthermore, a two-tiered grievance redressal structure may be introduced within regulated entities, allowing for internal resolution before escalation to the internal ombudsman.

"These measures aim to provide meaningful and timely resolution of customer grievances within the regulated entities, thereby improving service standards and consumer confidence," Malhotra said. The RBI's Monetary Policy Committee, in a unanimous decision Wednesday, left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance.  End

Reported by Vaishali Tyagi

Edited by Deepshikha Bhardwaj

TO REVIEW INSTRUCTIONS ON BASIC SAVINGS BANK DEPOSIT ACCOUNT

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The Reserve Bank of India Wednesday announced a review of existing instructions on basic savings bank deposit account to provide affordable banking facilities to the public, it said in the statement for developmental and regulatory policies. The central bank also aims to drive usage of these savings accounts to promote and deepen financial inclusion. 

The instructions require banks to provide some minimum facilities free of charge, without the requirement of minimum balance, to the holders of such accounts, the RBI said. The ongoing digitalisation in the banking sector requires basic savings bank deposit accounts to align with the evolving needs of customers.

In a unanimous decision on Wednesday, the RBI's Monetary Policy Committee left the policy repo rate unchanged at 5.50%. It also retained its 'neutral' policy stance.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Muskan Lodhi

Edited by Avishek Dutta

PROPOSE TO REVIEW EXTERNAL COMMERCIAL BORROWING NORMS

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The Reserve Bank of India has proposed to review regulations governing external commercial borrowings under the Foreign Exchange Management Regulations, 2018, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee's meeting Wednesday. "With an objective to rationalise and simplify the regulations governing external commercial borrowings, the Reserve Bank of India has undertaken a review of the existing provisions," Malhotra said. A draft framework on the matter will be issued soon.

Upon review, the proposed framework includes changes such as expansion of the eligible borrower and recognised lender base, rationalisation of borrowing limits, rationalisation of restrictions on average maturity period, and removal of restrictions on the cost of borrowing for external commercial borrowings. Additionally, end-use restrictions will be reviewed and reporting requirements will be simplified, the RBI said. 

In a unanimous decision Wednesday, the rate-setting panel left the policy repo rate unchanged at 5.50%. It also retained its 'neutral' policy stance. Malhotra noted that the decision was a fallout of the inflation outlook turning out to be more benign than previously projected.  End

Reported by Vaishali Tyagi

Edited by Akul Nishant Akhoury

PLAN DRAFT NORM TO CUT RISK WEIGHTS ON LOANS BY NBFC TO INFRA

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Reserve Bank of India Governor Sanjay Malhotra on Wednesday said the central bank will soon issue a draft guideline to reduce the risk weights on loans by non-banking financial companies to operational and high-quality infrastructure projects. Malhotra, while detailing the monetary policy decision, announced additional measures to strengthen the resilience and competitiveness of the banking sector. These measures included reducing the cost of infrastructure financing for non-banking finance companies.

"Infrastructure projects that have commenced operations typically exhibit lower risk compared to those under construction," Malhotra said. "Recognising this risk differential, the existing capital adequacy norms permit NBFCs to assign a lower risk weight to operational projects under public-private partnerships."

The RBI will introduce a principle-based framework to further rationalise the risk weights for infrastructure lending by NBFCs with the nuanced risk-profile of operational projects. The framework will aim to align risk weights with the actual risk characteristics of operational infrastructure projects, promote better risk assessment and capital allocation.

The system-level parameters of NBFCs are sound, with adequate capital and improved gross non-performing asset ratios, Malhotra said.  End

Reported by Srijita Bose

Edited by Ashish Shirke

MALHOTRA SAYS CENTRAL BANK FEELS 10-YR GILT YLD SHOULD BE LOWER

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The Reserve Bank of India feels that the yield on the 10-year benchmark gilt has scope to fall more, Governor Sanjay Malhotra said Wednesday. The net policy transmission to government bond yields has been only about 30 basis points, compared with the 100-basis-point cut in the repo rate since February, Malhotra said. The Monetary Policy Committee of the RBI on Wednesday kept the repo rate unchanged at 5.50%, for the second meeting in a row.   

"... The other thing is that 10-year (gilt yield) will not move one is to one," Malhotra said at the post-policy press conference. "Let's keep that also in mind. So 25-30 basis points (current transmission), while there is scope for more. We feel that it should head downwards. A number of measures have been contemplated in this regard, including how the primary G-sec auctions will be held, the tenure of these government offerings, not only central government, (but) as well as state government..."  

The governor noted that this year, the 10-year benchmark gilt yield had fallen from a peak of about 6.86% to 6.30% due to easing monetary policy, but had hardened after the June monetary policy announcement. 

Malhotra said that the central bank is watchful of the policy transmission through government bond yields, although bond yields ultimately depend on demand and supply. The central bank will address how to fulfil all the needs of the economy, Malhotra said.

The governor said inflation has declined by about 100 basis points since the June policy, which has opened up space for further policy easing. Though GDP growth surprised on the upside in Apr-Jun, the RBI has revised down its estimates for the second half of 2025-26 (Apr-Mar) and the first quarter of FY27 due to imposition of 50% on Indian goods by the US, which will partly offset the impact of goods and services tax rate cuts, Malhotra said.  End

Reported by Cassandra Carvalho

Edited by Saji George Titus

NO PLAN TO LEVY ANY FEE ON UPI TRANSACTIONS, SAYS GOVERNOR

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The central bank has no plan to impose a fee on transactions carried out on the Unified Payments Interface, Reserve Bank of India Governor Sanjay Malhotra said at the post-policy press conference. In August, Minister of State for Finance Pankaj Chaudhary had also said there was no proposal before the central government to impose charges on transactions done through the Unified Payments Interface.

In July, Malhotra had said the payments interface is sustainable only so long as someone bears the cost. Currently, the government bears the cost. "Cost of any service should be paid collectively, or by the user," Malhotra had said. However, in August, the governor denied his statement.

The number of Unified Payments Interface transactions surged to a record high of 20.01 billion in August, marking a 34% year-on-year rise, data from the National Payments Corp. of India showed.   End

Reported by Cassandra Carvalho

Edited by Rajeev Pai

REVISED NORMS FOR AUTHORISED DEALER BANKS TO EASE COMPLIANCE BURDEN

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The Reserve Bank of India has revised the regulations for authorised dealer banks to reduce the compliance burden on the banks and enhance the ease of doing business in India, the central bank said Wednesday in the Statement on Delevopmental and Regulatory Policies. "The revised regulations are principle driven and enable delegation of more powers to AD banks..." the RBI said. 

The draft of the revised regulations will be issued soon. The Reserve Bank of India's Monetary Policy Committee in a unanimous decision Wednesday left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance.  End

Reported by Janwee Prajapati

Edited by Tanima Banerjee

HAVE ROOM FOR RATE CUT BUT NEED TO WEIGH MORE FACTORS: RBI GUPTA

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The Reserve Bank of India's Monetary Policy Committee sees "some room has opened" up for further rate cuts to support domestic growth--which is expected to see a downward pressure in Oct-Mar from US' tariffs--but will consider a host of other factors in taking the decision, Deputy Governor Poonam Gupta said Wednesday. "Some room has opened...but it has to be contextualised with everything else that's happening both domestically and globally," Gupta said at the post policy press conference.

The RBI's Monetary Policy Committee at its latest meeting decided to leave the policy repo rate unchanged at 5.50% and maintained the 'neutral' stance adopted in June. "..it's a fast evolving very, very fluid situation," Gupta said while answering a question by Informist, adding that GDP growth was only one of the number of factors that will be taken into account to take a call on rate cut. 

While the macroeconomic conditions and the outlook opened up policy space for further supporting the growth, the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out, hence, the MPC decided to maintain the status quo, central bank Governor Sanjay Malhotra said. The committee has lowered the repo rate by 100 basis points so far this year. 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.

According to Malhotra, the transmission of the 100-basis-point interest rate cuts this year has been "good" so far and is still happening. We are confident that policy transmission will continue going forward, he added. 

Although the policy stance was retained at 'neutral', Malhotra said that there was a discussion to change the stance to 'accomodative' to better support growth against the backdrop of exogenous pressures. Two members--Nagesh Kumar and Ram Singh--were of the view that the stance should be changed from 'neutral' to 'accommodative'. 

The central bank Wednesday raised the GDP growth forecast for the current fiscal by 30 bps to 6.8% but that was primarily because of the robust Apr-Jun GDP print and the better-than-projected expectation of Jul-Sept print. As per data from the statistics ministry, India's GDP grew 7.8% in Apr-Jun, which was a surprise on the upside and is expected to be 7% in Jul-Sept, 30 bps higher than earlier projected.

The RBI lowered the GDP forecast for Oct-Dec as well as Jan-Mar due to trade-related headwinds weighing on economic growth in the last two quarters of the fiscal year, Malhotra said. GDP print in Oct-Dec is now expected to be 6.2%, 10 bps lower than earlier projected and 6.8%% in Jan-Mar, 30 bps lower than previous estimate by the RBI.

The Indian economy, particularly exports and capital formation, faces risks from the tariffs by the US. Citing displeasure over the high trade gap, the US had imposed a 25% reciprocal tariff on India, with an additional 25% as punitive tariff for trading with Russia. US' higher tariffs on India result in a pricing disadvantage of 30–35% for Indian exports, making them less competitive compared with those from China, Vietnam, Cambodia, the Philippines, and other Southeast and South Asian countries. The US accounts for nearly 20% of India's total exports. The central bank accounted for the impact of tariffs in the economy while making its projections, Malhotra clarified.

Against these exogenous risks, the MPC draws comfort from benign inflation to support growth. As such, the RBI even tweaked its language, from having "limited" room for policy easing to "have room" for policy easing, supported by "surprisingly, really really" benign inflation print. 

The RBI Wednesday cut its headline inflation forecast for the current quarter ending December by 130 bps to 1.8% and lowered the projection for 2025-26 (Apr-Mar) by 50 bps to 2.6%. As per the latest data, India's headline CPI inflation rose to 2.07% in August from an eight-year low of 1.61% in July because of a rise in food prices. This was the first time CPI inflation has risen in 10 months and the seventh consecutive month when it was below the RBI's medium-term target of 4.0%. The lowest CPI inflation print in the current series was 1.46% in June 2017.

The central bank also lowered the inflation projection for the quarter ended September by 30 bps to 1.8%. The statistics ministry will release CPI data for September on Oct. 13. A back-of-the-envelope calculation shows inflation was around 1.72% in September. Financial and price stability is foremost for the central bank, so every step will be taken to keep it under control, Malhotra said, adding that necessary steps will be taken to deal with weather-related risks to inflation, if any. 

Malhotra also said that inflation forecast includes the impact of the sweeping GST changes and the US' tariffs.

Prime Minister Narendra Modi had on Aug. 15, from the ramparts of Red Fort, announced GST reforms as part of next-generation structural reforms that will support the domestic economy. Following this announcement, the GST Council overhauled the indirect tax regime by collapsing the four-slab GST structure of 5%, 12%, 18%, and 28% to a two-slab structure of 5% and 18%. The council also introduced a new GST rate of 40%, to be imposed on sin and luxury goods. All new rates, except for those on tobacco products, took effect from Sept. 22.

Malhotra said while this will have a positive impact on the economy, it will not fully offset the impact of US' tariffs. Nonetheless, the RBI and the government will make efforts to counter external headwinds, he said. The government has put in several steps to ease supply chain management, he said, adding that governments's capital expenditure push has also worked, leading to good demand in a lot of sectors for capex. 

Speaking about the discussion paper seeking comments from stakeholders on the flexible inflation targeting framework that is up for review in FY26, Malhotra said that it has got various suggestions so far. The existing framework is set to lapse on Mar. 31. 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.  End

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

WORKING ON SOFTWARE TO PRE-EMPT FRAUDULENT BANK TRANSACTIONS

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The Reserve Bank of India is working to develop a software to pre-empt and curb fraudulence in banking transactions, Governor Sanjay Malhotra said Wednesday. The software is similar to RBI's artificial intelligence-powered tool--MuleHunter.ai--designed to identify and flag suspicious bank accounts, known as "mule accounts".

The software is currently in "experiment stage", Malhotra said at post policy press conference, adding that the RBI's wholly-owned subsidiary RBI Innovation Hub is working on developing the software. The software will help bring down instances of bank fraud significantly as it will alert the users if a transaction is risky, based on the location and other available details of the receiver's bank account, RBI Deputy Governor T. Rabi Sankar said.

Further, shedding light on the rationale behind the RBI's decision to withdraw the guidelines on enhancing credit supply for large borrowers through market mechanism, Malhotra said the share of banking exposure of corporates has come down over the years. "The risks are not so many. So that's the primary reason why we have proposed to remove the large exposure frameworks for specific borrowers at banking system level," he said. 

The RBI had in August 2016 issued the guidelines on enhancing credit supply with an objective to address the concentration risk arising from the aggregate credit exposure of the banking system to a single large corporate and encourage such large corporates to diversify their sources of funding. 

The banking system's ability to handle risk has also improved over the period, Deputy Governor Rajeshwar Rao pointed out. He said the decision to withdraw the norm is measured and calibrated and the RBI will also invite public consultation on the matter, Rao said.

The economy has evolved significantly since 2016 and now the RBI can consider the review. "The 2016 policy was more about mitigating risk and limiting exposure to large corporates at the banking system level, not at the bank level," Malhotra said.

The RBI will review all its regulations every 5–7 years to lower the compliance burden and promote ease of doing business, Malhotra said. The review will be well-thought through and include public consultation, Malhotra added. The RBI will also decide on issuing new licences to urban co-operative banks only after adequate consultation, he said. 

At the same time, Malhotra clarified that review of norms should not be seen as relaxation of norms. Customers' interests have to be protected when they take loans, the governor said. "Even a single episode of financial instability can take us back many years."   End

Reported by Krity Ambey

Edited by Vandana Hingorani

TOP 10 ANNOUNCEMENTS BY GOVERNOR MALHOTRA AFTER MPC MEET

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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 fourth 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 decided to continue with the 'neutral' stance. RBI Governor Sanjay Malhotra said the decision was a fallout of inflation outlook turning out to be more benign than previously projected. 

GROWTH

The central bank raised its GDP growth projection for FY26 to 6.8% from 6.5% projected earlier. The RBI also raised its GDP growth estimate for the September quarter to 7% from 6.7%. However, the central bank slashed its GDP growth projections for the remaining quarters of the current fiscal as well as for Apr-Jun of FY27. The central bank has cut its forecast for Oct-Dec to 6.4% from 6.6%, and to 6.2% from 6.3% for Jan-Mar. The RBI also cut its growth projection for the June quarter of FY27 to 6.4% from 6.6%.

INFLATION

The RBI lowered its inflation projection for FY26 by 50 bps to 2.6%. The quarterly break-up of the central bank's latest inflation forecasts is as follows: 1.8% for Jul-Sept, 1.8% for Oct-Dec, and 4% for Jan-Mar. The central bank has also revised inflation projection for Apr-Jun of FY27 to 4.5% from 4.9%. The central bank also lowered the inflation projection for the quarter ended September in FY27 by 30 bps to 1.8%. The risks are evenly balanced. 

LIQUIDITY AND FINANCIAL STABILITY

System liquidity, as measured by the net position under the Liquidity Adjustment Facility, stood at an average daily surplus of INR 2.1 trillion since the last MPC meeting in August. Going ahead, as the cash reserve ratio cut announced in the last policy comes into effect in a staggered manner beginning September, it would further support liquidity conditions. Going ahead, the drawdown of government cash balances and the remaining 75 bps cut in the cash reserve ratio during Oct-Nov will aid banking system liquidity in the near term. Through two-way operations, the central bank will actively manage liquidity to anchor short-term rates.

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

Bank credit growth, despite being lower than last year, continues to be healthy and supportive of real economic activity. As other sources of funding are gradually but steadily increasing their footprint, it is the overall flow of financial resources to the economy that is more pertinent for assessing the flow of funds to the productive sectors. The total flow of resources from non-bank sources to the commercial sector increased by INR 2.66 trillion in 2025-26 (Apr-Mar) so far, more than offsetting the decline in non-food bank credit by INR 480 billion.

BANKING SECTOR MEASURES

The expected credit loss framework of provisioning with prudential floors is proposed to be made applicable to all scheduled commercial banks (excluding small finance banks, payment banks, and regional rural banks) and All India Financial Institutions with effect from Apr. 1, 2027. Banks will be given a glide path (till Mar. 31, 2031) to smoothen the one-time impact of higher provisioning, if any, on their existing books.

Further, it is proposed to make the revised Basel III capital adequacy norms effective for commercial banks, excluding small finance banks, payment banks, and regional rural banks, from Apr. 1, 2027. In furtherance of this, a draft of the standardised approach for credit risk shall be issued shortly. Under the revised approach, the proposed lower risk weights on certain segments are expected to reduce the overall capital requirements, particularly for micro, small, and medium enterprises and residential real estate (including home loans).

It may be recalled that capital requirements for operational risk have already been finalised in 2023 whereas the capital requirements for market risk are under finalisation after receipt of comments from the public. These measures will help align the central bank's guidelines with international standards adapted to national conditions and priorities, and strengthen the capital adequacy framework for banks and All India Financial Institutions.

A draft circular on Forms of Business and Prudential Regulation for Investments was issued in October 2024, and it has been finalised after public consultations and will be issued shortly. The proposed regulatory restriction on overlap in the businesses undertaken by a bank and its group entity/entities is being removed from the final guidelines. The strategic allocation of business streams among group entities will be left to the wisdom of bank boards.

It is further proposed to introduce risk-based deposit insurance premium with the currently applicable flat rate of premium as the ceiling. This will incentivise sound risk management by banks and reduce premium to be paid by better-rated banks.

IMPROVING CREDIT FLOW

To expand the scope of capital market lending by banks, it is proposed to provide an enabling framework for Indian banks to finance acquisitions by Indian corporates.

It is proposed to remove the regulatory ceiling on lending against listed debt securities, and enhance limits for lending by banks against shares from INR 2 million to INR 10 million and for initial public offering financing from INR 1 million to INR 2.5 million per person.

It is also proposed to withdraw the framework introduced in 2016 that disincentivised lending by banks to specified borrowers (with credit limit from the banking system of INR 100 billion and above).

The Large Exposure Framework put in place for banks addresses credit concentration risk to a particular entity or group at an individual bank level, concentration risk at the banking system level, as and when considered necessary, will be managed through specific macroprudential tools.

To reduce the cost of infrastructure financing by NBFCs, it is proposed to reduce the risk weights applicable to lending by NBFCs to operational, high quality infrastructure projects. Since 2004, licensing for urban co-operative banks had been paused. Considering the positive developments in the sector during the last two decades and in response to the growing demand from the stakeholders, the central bank proposed to publish a discussion paper on licensing of new urban co-operative banks.

EASE OF DOING BUSINESS

Several circulars and directions, totalling about 9,000, have been consolidated across 11 types of regulated entities. Drafts of the same shall be issued shortly for public consultation. Second, it is proposed to provide greater flexibility to banks for opening and maintaining transaction accounts of borrowers. This will particularly help borrowers which are regulated by a financial sector regulator. 

EXPORT SECTOR, INTERNATIONALISING RUPEE

To further strengthen the export sector and enhance ease of doing business, the RBI shall extend the time period for repatriation from foreign currency accounts of Indian exporters in Indian Financial System Code from one month to three months. The central bank shall increase the period for forex outlay for merchanting trade transactions from four months to six months and simplify the process of reconciliation of outstanding entries related to exports and imports in the respective reporting portals, like Export Data Processing and Monitoring System or Import Data Processing and Monitoring System.

The central bank proposed key provisions relating to eligible borrowers, recognised lenders, limits on borrowing, cost of borrowing, end-use and reporting, etc. in external commercial borrowing regulations, issued under the Foreign Exchange Management Act, are proposed to be rationalised. It is proposed to rationalise FEMA regulations regarding non-residents establishing their business presence in India.

The RBI proposed to permit authorised dealer banks to lend in Indian rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross-border trade transactions. The central bank also proposed establishing transparent reference rates for currencies of India's major trading partners to facilitate rupee-based transactions and to permit wider use of special rupee vostro account balances by making them eligible for investment in corporate bonds and commercial papers.

ENHANCING CONSUMER SATISFACTION

The bouquet of services offered to basic savings bank deposit account holders without levy of minimum balance charges is proposed to be expanded to, inter alia, include digital banking (mobile/internet banking) services. The Internal Ombudsman mechanism is proposed to be strengthened to make grievance redressal by regulated entities more effective. The RBI Ombudsman Scheme is also being revised for improved grievance redressal, and rural cooperative banks are being included under the ambit of the Scheme.  End

Compiled by Vaishali Tyagi

Filed by Tanima Banerjee

PROPOSES RISK-BASED PREMIUM NORMS FOR DEPOSIT INSURANCE

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

The Reserve Bank of India has proposed to introduce a risk-based premium framework for deposit insurance in India, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee's meeting on Wednesday. "It is further proposed to introduce risk-based deposit insurance premium with the currently applicable flat rate of premium as the ceiling," Malhotra said. "This will incentivise sound risk management by banks and reduce premium to be paid by better rated banks." A detailed notification on the matter is expected to be issued soon, and this will be effective from the next financial year.

The RBI's proposal would allow financially sound banks to save significantly on the premium paid. Credit Guarantee Corp. has been operating the deposit insurance scheme since 1962 on a flat rate premium basis. Currently, banks pay a flat rate premium of 12 paise per INR 100 of assessable deposits. While the existing system is simple to understand and administer, it does not differentiate between banks based on their soundness, the RBI said.

In a unanimous decision Wednesday, the rate-setting panel left the policy repo rate unchanged at 5.50%. It also retained its 'neutral' policy stance. Malhotra noted that the decision was a fallout of the inflation outlook turning out to be more benign than previously projected.  End

Reported by Vaishali Tyagi

Edited by Avishek Dutta

TO SIMPLIFY RECONCILIATION PROCESS FOR IMPORTERS, EXPORTERS

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

The Reserve Bank of India plans to simplify the process of reconciliation in Export Data Processing and Monitoring System and Import Data Processing and Monitoring System, Governor Sanjay Malhotra said Wednesday while detailing the outcome of the Monetary Policy Committee meeting. As per the revised guidelines, bills can be reconciled and closed by a bank, based on a declaration by the exporter or importer concerned, for entries of value equivalent to INR 1.0 million per bill or less, the central bank said. 

"This measure is expected to reduce compliance burden on small-value exporters and importers and enhance ease of doing business," the RBI said. The revised procedure will also enable reduction in the realisable value of bills by banks based on such declaration. The directions will be issued shortly, RBI said. 

In a unanimous decision, the Monetary Policy Committee left the policy repo rate unchanged at 5.50% and retained its "neutral" stance. 

Reported by Kabir Sharma

Edited by Rajeev Pai

TO INCREASE FX OUTLAY PERIOD FOR MERCHANTS TO 6 MONTHSS FROM 4 MONTHS

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

In the backdrop of global uncertainties resulting in supply chain disruptions for trade, the Reserve Bank of India has decided to increase the period of foreign exchange outlay for merchants' trade transactions to six months from four months, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Commttee's meeting. "This relaxation is expected to help Indian merchants overcome the challenges they face in completing their business transactions efficiently while maintaining profitability," the RBI said. 

The amendments to regulations will be notified shortly. The RBI's Monetary Policy Committee, in a unanimous decision Wednesday, left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance. 

Reported by Kabir Sharma

Edited by Avishek Dutta

CRR CUT, GOVT SPENDING TO AID LIQUIDITY IN COMING DAYS

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

The drawdown of government cash balances and the remaining 75-basis-point cut in the cash reserve ratio during Oct-Nov will aid the banking system liquidity in the near term, said Reserve Bank of India Governor Sanjay Malhotra Wednesday while outlining the Monetary Policy Committee's decision. Money market rates have remained relatively stable amid comfortable liquidity conditions, he said.

The RBI Tuesday net absorbed INR 780.21 billion from the banking system, which is a proxy for systemic liquidity surplus, higher than INR 550.06 billion on Monday. System liquidity, as measured by the net position under the Liquidity Adjustment Facility, stood at an average daily surplus of INR 2.1 trillion since the last Monetary Policy Committee meeting in August, the governor said.

The weighted average lending rate of scheduled commercial banks moderated by 58 bps for fresh rupee loans during February to August, when the RBI's rate setting panel slashed the repo rate by 100 bps. Moreover, the weighted average lending rate also moderated 71 bps due to the interest rate effect, the governor said.

"On the deposit side, the weighted average domestic term deposit rate on fresh deposits declined by 106 bps, while that on outstanding deposits softened by 22 bps over the same period. Transmission has been broad-based across sectors," Malhotra said. "Through our two-way operations, we will actively manage liquidity to anchor short-term rates."

The RBI on Tuesday released a revised liquidity management framework, shifting to seven-day variable rate repo and reverse repo operations as its primary tool to manage transient liquidity. It discontinued the 14-day operations, which served as its main policy tool in the old framework adopted in February 2020. 

Reported by Srijita Bose

Edited by Akul Nishant Akhoury

TO REMOVE BAR ON OVERLAP IN BUSINESSES OF BANK, GROUP ENTITIES

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

The Reserve Bank of India Wednesday said the proposed bar on overlap in the businesses undertaken by a bank and its group entity is being removed. Announcing the Monetary Policy Committee's decision, RBI Governor Sanjay Malhotra said the draft guidelines on forms of business and investment for banks issued in October 2024 have been finalised and shall be issued shortly.

In October last year, the central bank had said banks must seek the regulator's approval before starting any new activity--other than those already allowed by it--through a group entity. The move was aimed to avoid redundancies and overlapping risks and ensure accountability. However, on Wednesday, the RBI said, "Based on feedback and review, the proposed bar on overlap in the businesses undertaken by a bank and its group entity is being removed."

"The circular envisages to streamline the activities being undertaken by banks and their group entities while providing more operational freedom to the banks and NOFHCs (Non-Operative Financial Holding Company) for equity investments and setting up group entities respectively."

In a unanimous decision, the Monetary Policy Committee left the policy repo rate unchanged at 5.50% and retained its 'neutral' stance. 

Reported by J. Navya Sruthi

Edited by Ashish Shirke

TO EASE RESTRICTIONS ON BANKS FOR CREDIT DISCIPLINE

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

The Reserve Bank of India has proposed to ease the restrictions on the operation of current accounts, cash credit accounts, and overdraft account facilities of banks to provide greater flexibility to the banks, particularly in case of borrowers being entities regulated by a financial sector regulator, the central bank said in the statement for development and regulatory policies.

The draft guidelines for the same shall be issued shortly, the RBI said. The Reserve Bank of India's Monetary Policy Committee, in a unanimous decision Wednesday, left the policy repo rate unchanged at 5.50%, the central bank Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance.  

Reported by Janwee Prajapati

Edited by Akul Nishant Akhoury

TO ISSUE DISCUSSION PAPER ON LICENSING OF NEW URBAN CO-OP BANKS

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

The Reserve Bank of India will issue a discussion papers on resuming licencing of new urban co-operative banks shortly, according to the Statement on Developmental and Regulatory policies released by RBI Wednesday. Issuance of fresh licence for urban cooperative banks was paused following weak financial health of the sector since 2004, the RBI said.   

Taking in consideration that more than two decades have passed since the issuance was paused, and following the positive developments in the sector, the decision has been taken, the RBI said. The Reserve Bank of India's Monetary Policy Committee, in a unanimous decision Wednesday, left the policy repo rate unchanged at 5.50%, the central bank's Governor, Sanjay Malhotra said. The committee also retained its 'neutral' policy stance. 

Reported by Udita S. Jaiswal

Edited by Deepshikha Bhardwaj

EXCERPTS ON GDP GROWTH FROM MPC'S STATEMENT

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

Following are the excerpts on GDP growth from the statement issued by the Reserve Bank of India on Wednesday at the conclusion of the Monetary Policy Committee's fourth bi-monthly meeting for 2025-26 (Apr-Mar):

Economic activity has remained resilient, with growth of real GDP surprising on the upside at 7.8% and gross value added at 7.6% for Apr-Jun. As suggested by high frequency indicators available so far, domestic economic activity continues to sustain momentum in Jul-Sept.

Looking ahead, an above-normal monsoon, good progress of kharif sowing and adequate reservoir levels have further brightened prospects of agriculture and rural demand. Buoyancy in the services sector coupled with steady employment conditions are supportive of demand, which is expected to get a further boost from the rationalisation of GST. Rising capacity utilisation, conducive financial conditions, and improving domestic demand should continue to facilitate fixed investment. However, ongoing tariff and trade policy uncertainties will impact external demand. Prolonged geopolitical tensions and volatility in international financial markets caused by risk-off sentiments of investors pose downside risks to the growth outlook. The implementation of several growth-inducing structural reforms, including streamlining of GST, are expected to offset some of the adverse effects of the external headwinds.

Taking all these factors into account, real GDP growth for 2025-26 (Apr-Mar) is now projected at 6.8%, with Apr-Sept at 7.0%, Oct-Dec at 6.4%, and Jan-Mar at 6.2%. Real GDP growth for Apr-Jun of FY27 is projected at 6.4%. The risks are evenly balanced. 

Compiled by Srijita Bose

Filed by Tanima Banerjee

FX ACCOUNT REPATRIATION RAISED TO 3 MONTHS FROM 1 MONTH FOR EXPORTERS

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

The Reserve Bank of India has decided to extend the period for repatriation of funds from foreign currency accounts outside India to three months from one month, Governor Sanjay Malhotra said on Wednesday while detailing the outcome of the Monetary Policy Committee's meeting. 

In January, the central bank had permitted Indian exporters to open foreign currency accounts with a bank outside India for realisation of export proceeds, the RBI said. Funds in these accounts can be used to make import payment or have to be repatriated by the end of next month from the date of receipt of the funds. 

The move will encourage Indian exporters to open accounts with IFSC banking units and increase forex liquidity in IFSC. The amendments to regulations will be notified shortly, the central bank said. 

In a unanimous decision, the RBI's Monetary Policy Committee left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance. 

Reported by Rati Chaphekar

Edited by Avishek Dutta

EXPECTED CREDIT LOSS NORMS FOR BANKS TO BE EFFECTIVE APR 1, 2027

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

The Reserve Bank of India Governor Sanjay Malhotra on Wednesday said the expected credit loss framework will be effective for banks from Apr. 1, 2027. The guidelines are expected to enhance credit risk management practices, promote better comparability of reported financials across institutions, the governor said. "The guidelines are expected to enhance credit risk management practices, promote better comparability of reported financials across institutions. The framework is designed to be implemented in a non-disruptive manner with a suitable glide-path," the RBI said.  

The framework is designed to be implemented with a suitable glide-path of nearly five years, the governor said while outlining the monetary policy outcome and laying down the policy on development and regulatory changes. The RBI came out with a discussion paper in January 2023 on the expected-credit-loss approach for loan loss provisioning by banks. In October 2023, it formed an external working group on the framework for provisioning by banks. However, several industry participants raised concerns with the RBI on the changes proposed by the central bank. 

The RBI's Monetary Policy Committee on Wednesday kept the repo rate unchanged at 5.50% with a 'neutral' stance.

Reported by Srijita Bose

Edited by Deepshikha Bhardwaj

TO CONSOLIDATE REGULATORY NORMS TO REDUCE COMPLIANCE COST

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

The Reserve Bank of India has consolidated the regulatory instructions administered by the central bank's Department of Regulation into a set of master directions to provide ease of access and reduce the compliance cost faced by regulated entities, Governor Sanjay Malhotra said Wednesday while detailing the outcome of the Monetary Policy Committee meeting. 

The evolution of the regulatory framework resulted in an increase in the quantum of several circulars and directions, the RBI said. The new drafts of 250 master directions, which include instructions in 30 areas for 11 types of regulated entities, will be uploaded on the website for comments on their completeness and accuracy.

The RBI's Monetary Policy Committee in a unanimous decision Wednesday left the policy repo rate unchanged at 5.50%, Governor Malhotra said. The committee also retained its 'neutral' policy stance.  

Reported by Janwee Prajapati

Edited by Tanima Banerjee

TO ISSUE DRAFT NORM FOR REVISED BASEL FRAMEWORK ON CAPITAL CHARGE

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

The Reserve Bank of India Wednesday proposed to issue draft guidelines on implementation of the revised Basel framework on standardised approach for credit risk for scheduled commercial banks, it said in the statement for developmental and regulatory policies. These exclude small finance banks, payments banks, and regional rural banks.

The central banks aims to improve the resilience of the banking sector and align the regulatory framework with the best international practices, the RBI said. The revised framework focuses on enhancing the robustness, granularity, and risk sensitivity of standardised approach for determining the capital charge for credit risk. The central bank said it will issue draft guidelines shortly.  

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

Reported by Muskan Lodhi

Edited by Vandana Hingorani

TO REVIEW CAPITAL MARKET EXPOSURE GUIDELINES FOR BANKS

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

The Reserve Bank of India proposed a review of capital market exposure guidelines for banks, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee meeting on Wednesday. "There has been significant growth and development in the capital market structure, along with strengthening of the banking system in recent years," a statement from the RBI said. 

The review proposes to provide an enabling framework for banks to finance acquisitions by Indian corporates. The review also proposes to enhance the limit for lending by banks against shares, units of real estate investment trust, and units of infrastructure investment trust while removing the regulatory ceiling altogether on lending against listed debt securities. A more principle-based framework for lending to capital market intermediaries is also proposed, the RBI said. 

The RBI's Monetary Policy Committee in a unanimous decision Wednesday left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance. Malhotra noted that the decision was a fallout of inflation outlook turning out to be more benign than previously projected.  

Reported by Kabir Sharma

Edited by Tanima Banerjee

LEAVES REPO RATE UNCHANGED, CUTS FY26 INFLATION FORECAST TO 2.6%

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

The Reserve Bank of India's Monetary Policy Committee in a unanimous decision Wednesday left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance. However, two members -- Nagesh Kumar and Ram Singh -- were of the view that the stance should be changed from neutral to accommodative. Malhotra noted that the decision was a fallout of inflation outlook turning out to be more benign than previously projected. 

Leaving room for further easing of key policy rate, Malhotra said, "the current macroeconomic conditions and the outlook has opened up policy space for further supporting growth." The committee has lowered the repo rate by 100 basis points so far this year. 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.

Malhotra, however, said the committee noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out. "The MPC, therefore, considered it prudent to wait for the impact of policy actions to play out and greater clarity to emerge before charting the next course of action," he said.

The rate-setting panel's decision was on expected lines. Eleven of the 15 economists polled by Informist had expected the MPC to hold interest rates at this meeting.

The RBI Wednesday lowered its inflation forecast for the current fiscal by 50 bps to 2.6%. The central bank also revised upwards its GDP growth projection for FY26 by 30 bps to 6.8%.

The Monetary Policy Committee observed that the overall inflation outlook has turned even more benign in the last few months, Malhotra said. "The average headline inflation for 2025-26 is now revised lower from 3.7% and 3.1% projected in June and August policy, respectively, to 2.6%," he said. Malhotra also expects core inflation for this year and for 2026-27 (Apr-Jun) to remain contained.

Malhotra cautioned that though there has been a significant moderation in inflation, the prevailing global uncertainties and tariff-related developments are likely to decelerate growth in FY26 and beyond. India's exports and capital formation face risks from the imposition of the US tariffs. The US has imposed a 25% reciprocal tariff on India, with an additional 25% as punitive tariff for having trading relations with Russia. US' higher tariffs on India result in a pricing disadvantage of 30–35% for Indian exports, making it less competitive compared with those from China, Vietnam, Cambodia, the Philippines, and other Southeast and South Asian countries. The US accounts for nearly 20% of India's total exports. 

The standing deposit facility rate remains at 5.25% while the marginal standing facility rate and the Bank Rate remains at 5.75%.  

Reported by Priyasmita Dutta and Sagar Sen

Edited by Tanima Banerjee

RBI TO WITHDRAW GUIDELINES ON ENHANCING CREDIT SUPPLY

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

The Reserve Bank of India is set to withdraw the guidelines on enhancing credit supply for large borrowers through market mechanism, Governor Sanjay Malhotra said while detailing the outcome of the monetary policy committee's meeting. The central bank, in a unanimous decision Wednesday, left the policy repo rate unchanged at 5.50%, the governor said. The committee also retained its 'neutral' policy stance.

The guidelines on enhancing credit supply were issued in August 2016 with an objective to address the concentration risk arising from the aggregate credit exposure of the banking system to a single large corporate and encourage such large corporates to diversify their sources of funding, the bank said.

While the large exposure framework since put in place for banks addresses concentration risk at an individual bank-level, concentration risk at the banking system level, as and when considered as a risk, will be managed through specific macroprudential tools, the RBI said. 

Reported by Rati Chaphekar

Edited by Deepshikha Bhardwaj

RAISES FY26 GDP GROWTH VIEW TO 6.8%, HIKES JUL-SEPT VIEW TO 7%

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

The Reserve Bank of India Wednesday raised its GDP growth projection for 2025-26 (Apr-Mar) to 6.8% from 6.5% projected earlier. The central bank also raised its growth estimate for the September quarter to 7% from 6.7%.

However, the RBI slashed its growth projections for the remaining quarters of the current fiscal year as well as for Apr-Jun of FY27. The central bank has cut its forecast for Oct-Dec to 6.4% from 6.6%, and to 6.2% from 6.3% for Jan-Mar. The RBI also cut its growth projection for the June quarter of FY27 to 6.4% from 6.6%. The central bank sees trade-related headwinds weighing on economic growth in the last two quarters of the fiscal year, RBI Governor Sanjay Malhotra said while giving the projections.  

According to the data released earlier by the statistics ministry, India's GDP grew 7.8% in Apr-Jun, which was a surprise on the upside, Malhotra mentioned in his policy statement. 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. 

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.

While the macroeconomic conditions and the outlook opened up policy space for further supporting growth, the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out, hence the MPC decided to maintain status quo, Malhotra said. 

Domestically, the Indian economy is well-placed with strong consumption demand, which is expected to get a further boost from the rationalisation of goods and services tax rates. However, ongoing tariff and trade policy uncertainties will impact external demand and pose downside risks to the growth outlook, the governor said. But the growth outlook remains resilient, supported by domestic drivers, despite weak external demand, according to the MPC.

Much of the uncertainties emanate from the shift in the US' trade policy after President Donald Trump assumed office. The US, which is India's top export destination, imposed a 50% tariff on Indian goods in August. Besides the country-specific tariff, the Trump administration has also announced extra sector-wise tariffs on pharmaceutical products, automobiles, steel, and aluminium.   

Malhotra repeated that India's growth continues to be below RBI's aspirations. The governor had said this in his policy statement for June as well. The RBI wants the economy to grow as fast as possible, and aspires for a level close to 7-8%, Malhotra had elaborated at the post-policy press conference in June. 

Reported by Krity Ambey

Edited by Deepshikha Bhardwaj

CUTS Q3 CPI ESTIMATE BY 130 BPS TO 1.8%, FY26 BY 50 BPS TO 2.6%

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

The Reserve Bank of India Wednesday cut its headline inflation forecast for the current quarter ending December by 130 basis points to 1.8% and lowered the projection for 2025-26 (Apr-Mar) by 50 bps to 2.6%. Governor Sanjay Malhotra said the central bank draws comfort from the inflation outlook for FY26 becoming more benign than expected in August, buoyed by a sharp fall in food prices and expectation of lower overall prices following the goods and services tax rate rationalisation.

"In terms of the inflation outlook for H2 (Oct-Mar) 2025-26, healthy progress of the southwest monsoon, higher kharif sowing, adequate reservoir levels and comfortable buffer stock of foodgrains should keep food prices benign," Malhotra said in his fifth monetary policy statement on Wednesday. "The recently implemented GST rate rationalisation would lead to a reduction in prices of several items in the CPI basket," he said.

The Monetary Policy Committee noted that the average CPI inflation this year is expected to remain significantly below the target while growth could be affected in Oct-Mar owing to exogenous pressures. 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 appropriate monetary policy path. 

As per the latest data, India's headline CPI inflation rose to 2.07% in August from an eight-year low of 1.61% in July because of a rise in food prices. This was the first time CPI inflation has risen in 10 months and the seventh consecutive month when it is below the RBI's medium-term target of 4.0%. The lowest CPI inflation print in the current series is 1.46% in June 2017.

The central bank also lowered the inflation projection for the quarter ended September by 30 bps to 1.8%. The statistics ministry will release CPI data for September on Oct. 13. A back of the envelope calculation shows, inflation was around 1.72% in September.

The quarterly break-up of the central bank's latest inflation forecasts is as follows: 1.8% for Jul-Sept, 1.8% for Oct-Dec, and 4% for Jan-Mar. It had previously forecast inflation in the second quarter of FY26 to average 2.1%, third quarter at 3.1%, and fourth quarter at 4.4%. Malhotra also revised inflation projection for Apr-Jun of FY27 to 4.5% from 4.9%. "The risks are evenly balanced," he said.

The RBI's Monetary Policy Report, which was also released Wednesday, said that as per in-house model, inflation is expected to average 4.5% in FY27. 

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. GST rate rationalisation, on the other hand, will also add to the momentum as prices of a host of daily-use items, including food products, have gone down since Sept. 22. On Sept. 3, the GST Council overhauled the indirect tax regime by collapsing the four-slab GST structure of 5%, 12%, 18%, and 28% to a two-slab structure of 5% and 18%. 

The GST Council segmented the two broad GST slabs on the tenets of 'merit' and 'standard', putting majority of common-use items in the 5% slab, thereby bringing down the effective average GST rate. A host of white goods, especially consumer durables like washing machines and big televisions were moved to the 18% slab from 28%, thereby lowering the average GST rate.

Although the central bank's rate-setting panel draws comfort from the room provided by a significant moderation in inflation, it noted that large unfavourable base effects are likely to exert upward pressure on headline CPI inflation, especially in Jan-Mar. Although, it will be broadly aligned with the 4% target despite unfavourable base effects, the MPC noted. 

Core inflation--which excludes food and fuel items, whose prices can be volatile--remained at 4.1% in August, the same as in July. Malhotra said core inflation was contained in August despite continued price pressures on precious metals like gold and silver. For FY26 and Apr-Jun of FY27, the central bank chief said core inflation is expected to remain contained. 

It is safe to say that inflation is not a concern for the central bank at present. According to Malhotra, fast-changing global economic landscape have altered the narrative on growth-inflation dynamics in India. He, however, noted that even when inflation has remained above the respective targets in some advanced economies, posing fresh challenges for central banks as they navigate the shifting trends, India has been able to stick to price stability. 

Reported by Priyasmita Dutta

Edited by Vandana Hingorani

EXCERPTS ON INFLATION FROM MPC'S STATEMENT

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

Following are the excerpts on inflation from the statement issued by the Reserve Bank of India on Wednesday at the conclusion of the Monetary Policy Committee's fourth bi-monthly meeting for 2025-26 (Apr-Mar):

Headline CPI inflation declined to its eight-year low of 1.6% on year in July before rising to 2.1% in August – its first increase after nine months. Benign inflation conditions during 2025-26 so far have been primarily driven by a sharp decline in food inflation from its peak of Oct. 2024. Inflation within the fuel group moved in a narrow range of 2.4-2.7% during June-August. Core inflation remained largely contained at 4.2% in August. Excluding precious metals, core inflation was at 3.0% in August.

In terms of the inflation outlook for Oct-Mar 2025-26, healthy progress of the south-west monsoon, higher kharif sowing, adequate reservoir levels and comfortable buffer stock of foodgrains should keep food prices benign. The recently implemented GST rate rationalisation would lead to a reduction in prices of several items in the CPI basket. Overall, the inflation outcome is likely to be softer than what was projected in the August MPC resolution, primarily on account of the GST rate cuts and benign food prices. Despite the anticipation of moderate momentum during Oct-Mar, large unfavourable base effects are likely to exert upward pressure on headline CPI inflation, especially in Jan-Mar. Considering all these factors, CPI inflation for 2025-26 is now projected at 2.6% with Jul-Sept at 1.8%; Oct-Dec at 1.8%; and Jan-Mar at 4.0%. CPI inflation for Apr-Jun FY27 is projected at 4.5%. The risks are evenly balanced.

Compiled by Cassandra Carvalho

Filed by Tanima Banerjee

End

US$1 = INR 88.71

Compiled by Shivaji Jagatap and Mayur Nijap

Filed by Akul Nishant Akhoury

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