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Informist, Friday, Dec. 5, 2025

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

SPECIAL STORIES

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FOCUS: BOND YLDS TO MOVE LOWER AS MPC RATE CUT, RBI OMOS SIGNAL EASING BIAS

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The Reserve Bank of India seems to have given bond yields a green signal to move lower following the Monetary Policy Committee's December meeting. Bond traders may not have acted on it immediately Friday, but the message was clear: the central bank is infusing liquidity and may continue easing.

The rate-setting panel cut the repo rate to a three-year low of 5.25%, marking the first reduction since June. It also lowered its inflation forecasts for 2025-26 (Apr-Mar) and beyond, with RBI Governor Sanjay Malhotra committing to maintain "low" rates for some time amid below-target CPI inflation. Moreover, the central bank announced it would buy gilts worth INR 1 trillion through open market operation auctions in two tranches in December, the first such measure since May. It will also conduct a three-year dollar-rupee buy-sell swap auction for $5 billion on Dec. 16 to infuse durable liquidity. 

"The RBI delivered on most fronts on Friday, lowering rates as per our expectations and taking pro-liquidity steps, as well as measures to prevent a re-hardening in borrowing costs," said Radhika Rao, executive director and senior economist at DBS Bank.

Ashhish Vaidya, managing director and country treasurer of DBS Bank's Indian unit, still sees the 10-year yield in the 6.40-6.60% range it has traversed over the past two months. While traders agree on the upper end of the band, they now see hope that the lower end of the trading range could fall to 6.35% by February, a level last seen in August.

One could be forgiven for thinking bond traders had expected this largesse heading into the rate decision. After falling as much as 6 basis points to a near three-month low of 6.45%, the 10-year benchmark yield ended only 2 bps lower at 6.49% due to a spate of profit booking. But the market had barely priced in the expectation of a rate cut before the policy. Instead, the muted reaction in the benchmark gilt as well as the most-traded 6.33%, 2035 bond was primarily caused by the fresh sale of INR 320 billion of the 6.48%, 2035 bond at auction Friday, dealers said.

Beyond the pullback, other liquid bonds fared much better. The five-year benchmark gilt yield fell as much as 10 bps, its largest intraday fall since October, and ended 6 bps lower, driven by the rate cut. This was helped by traders' expectations that the MPC could cut rates again in February if inflation remained benign.

"The RBI governor acknowledged that inflation has been low and more importantly, the Monetary Policy Committee did not let high growth dictate the policy...the kind of hawkishness markets had expected with the rate cut was not there," said Nitin Agarwal, head of trading, ANZ Bank India. India's CPI inflation fell to a record low of 0.25% in October while GDP growth rose to a six-quarter high of 8.2% in the September quarter, which RBI Governor Malhotra described as a rare "Goldilocks" period.

LIQUIDITY PERMUTATIONS

What deterred some traders from piling into bonds immediately was the lack of certainty about the central bank's liquidity measures. The ones announced for December were an immediate boost, but questions remained around future actions. While the rate cut had drawn divided views from the market, traders had been unified in expecting large OMO buys in the remainder of the financial year ending March.

Most traders saw a liquidity infusion of up to INR 3 trillion by March, which they had hoped would come through OMOs that would allow them to sell gilts to the RBI. With a dollar-rupee buy-sell swap already announced, traders expect another such auction in Jan-Mar that adds liquidity without benefitting bond traders directly. This would cap the RBI's OMO purchases through auctions to INR 2 trillion, dealers said. 

"To some extent, the market is now saying that because the governor announced the swap auction, that takes away from the total bond buyback amount that could have otherwise happened," ANZ Bank's Agarwal said.  

Durable liquidity has shrunk to INR 3.61 trillion on Nov. 14 from nearly INR 6 trillion in July, the latest RBI data showed. Further outflows are expected in the March quarter due to currency-in-circulation leakage, while advance tax and goods and services tax outflows will deprive banks of much of the benefit of the INR-1.45-trillion liquidity infusion announced Friday.

Moreover, RBI Governor Sanjay Malhotra downplayed the influence of OMO purchases on bond yields in the post-policy press conference and said the tool was primarily for liquidity infusion. He also signalled the central bank was comfortable with the banking system liquidity, in a surplus of less than 1% at times, as long as rate cut transmission continued. Regardless, bonds maturing in up to 10 years would be favoured as liquidity remains in surplus, dealers said.

"With these measures adding about INR 1.45 lakh crore (INR 1.45 trillion) of durable liquidity in a short timeframe, the need for further durable liquidity measures in the next 2-3 months has reduced," Edelweiss Mutual Fund said in a note. "This imparts uncertainty regarding the timing of further OMOs beyond the amount stipulated."
 

BUMPY ROAD ON DEMAND-SUPPLY

Some participants remain cautious despite the RBI putting its best foot forward for bonds on the monetary policy. Market participants see other outstanding issues that may potentially keep gilt yields steady or higher outside of the central bank's ambit, such as unfavourable demand-supply dynamics that persist into 2026. Bond supply from states is likely to increase sharply in Jan-Mar, a seasonal rise that has seen over INR 4 trillion of state bond supply hitting the market. 

Complicating the matters, RBI Governor Malhotra said that term spreads were currently similar to when the policy repo rate was 5.15% in 2019, suggesting the central bank is not unduly worried about capping bond yields. He also denied that the RBI would buy state bonds in OMOs. The spread of some 10-year state bonds has climbed to more than 100 bps over the 10-year benchmark gilt in two separate stretches this year, including at the auction Tuesday. 

"As a trader, you are now at a level where you are being asked to absorb large supply near a cyclically low level of yields at the end of a rate cut cycle," a trading head at a primary dealership said. "The hope of another rate cut is also subdued, and as the governor hinted, term spreads should very much widen with a lower repo rate."

Traders remained hopeful that the RBI would include bonds maturing in over 15 years at the upcoming OMOs, a hope answered by the central bank's inclusion of the 6.67%, 2050 bond in Thursday's auction. Long-term bonds have been a source of much misery and loss for treasuries amid a relentless rise in yields, due to lack of support from traditional investors like life insurers and pension funds. 

What worries market participants is that investors will not be flocking to reinvest the proceeds into government bonds. Banks have been holding securities in excess of statutory liquidity ratio norms for years and have been trimming these holdings since the September quarter. A reduction in regulatory requirements to hold liquid securities starting in April will also push gilt investments out of favour with banks, historically the largest holders of government bonds. 

"Banks are full-up on investments and don't see the reason to buy more. There is a crunch in deposits across the banking system and there is credit demand, which is the first course of action for a bank," a senior treasury official at a large state-owned bank said. "I don't expect yields to run down in the near-term, but slowly fall in the next two months to around 6.35% (on the 10-year gilt yield)."    End

Reported by Aaryan Khanna

With inputs from Pratiksha

Edited by Akul Nishant Akhoury 

SPOTLIGHT: RBI RATE CUT ADDS MOMENTUM TO EQUITIES AMID MARKET RECOVERY

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Unlike many monetary policy days in the past, Friday was a cheerier day for equity investors as the Reserve Bank of India reduced key interest rates and made positive revisions to its projections on economic growth and inflation. Even though RBI Governor Sanjay Malhotra said future rate action will be data-driven, the Street bet on the possibility of another rate cut.

"The favourable inflation outlook, which is below the RBI's comfort zone, alongside relatively lower GDP projections for the upcoming year than the previous fiscal (2025-26) and lower high-frequency leading indicators leave some space for additional rate cuts going ahead," Parijat Agrawal, head of fixed income at Union Asset Management Co., said. At a time when Indian equities are slowly becoming attractive again to investors after over a year of muted returns, the rate cut comes as an additional tailwind.

This is amid expectations of stronger corporate earnings growth, a pickup in consumption on the back of recent goods and services tax cuts, higher government capital expenditure, softer inflation, higher-than-expected economic growth, optimism that foreign investors will return to India in the upcoming months, and easing global crude oil prices. For context, crude oil prices fell to around $60 per barrel in November from over $81 per barrel in June, while the rupee broke the 90 per dollar mark for the first time this week.

A slowdown in earnings downgrades and normalisation of valuations has also driven the equity market back to its record high. Last week, the Nifty 50 hit a new record high of 26325.80 points after more than a year. On Friday, the index rose 0.6% to end at 26186.45 points after the RBI's monetary policy announcement.

The Nifty 50 is trading at 21.5 times one-year forward earnings, which is one standard deviation above the long-period average, according to BofA Securities. "... we see no room for valuation expansion beyond +1 SD (standard deviation) and believe Nifty (50) returns would be commensurate to its earnings growth," the brokerage said in a strategy report Wednesday.

The last year was unfavourable for bulls due to muted earnings growth, recurring selling pressure from foreign investors, US tariff concerns, and rupee depreciation, among others. For most of the year, the domestic market underperformed many global peers. What supported equities during this period were the persistent inflows from domestic investors. The recent boom in initial public offerings is another indication of rising optimism about the fundamentals of the domestic market, analysts said.

Now that interest rates in India have been reduced further by 25 basis points to 5.25%, capital-intensive and interest-rate-sensitive consumption segments are expected to benefit meaningfully from the softer rate regime, Nirav Karkera, head of research at wealth management and investment platform Fisdom, said. "On the consumption side, the convergence of improving affordability, supported by recent tax reforms, pay commission-driven income effects, and a strong propensity to spend, positions sectors like automobiles, housing, and discretionary consumption to respond favourably to lower borrowing costs," he said.

BEYOND BULLISH PICTURE

However, for all market experts the picture is not as colourful. A section of participants believes it is still too early to make aggressive bullish bets. One reason is the delay in a trade deal between the US and India, despite positive comments from leaders of both sides. Experts said it is difficult to predict the next leg of policies under US President Donald Trump, who has been going back and forth on tariff policies since February.

Another reason is the caution regarding the medium-term effectiveness of GST cuts, with some analysts saying they will watch demand trends in the remaining part of the current financial year before making any major changes to earnings estimates. Experts also said the growth in average income is not meaningful enough to drive demand.

All eyes will be on the US Federal Reserve's monetary policy announcement next week. The US central bank is widely expected to reduce rates by 25 bps. According to the CME FedWatch Tool, there is an 87% chance the Fed will lower rates by 25 bps, up from 62% a month ago.  End

Reported by Anjana Therese Antony

Edited by Ashish Shirke

INFORMIST POLL: MOST SEE MPC KEEP STATUS QUO FEB AS RATE CUT CYCLE NEARS END

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There is divergence among economists and analysts about the future trajectory of interest rates after the Reserve Bank of India's Monetary Policy Committee slashed rates by 25 basis points Friday, according to an Informist poll. 

With inflation below target, growth seen moderating, and 125 bps of policy easing already in place this year, the MPC is seen near the end of its rate cut cycle, economists said, adding that the panel can at most lower the repo rate by only 25 bps from the current 5.25%. 

Of the 21 economists, market participants, and analysts polled after Friday's interest rate decision, nearly 60% said they expect the MPC to hold rates in February. Only five participants polled said they see a 25-bps rate cut on Feb. 6, which would be the last of the cycle that began in February this year.  

The MPC lowered the repo rate Friday, after leaving it unchanged over the last two meetings, and retained the neutral policy stance for the third consecutive meeting. The rate-setting panel has now lowered the repo rate by a total of 125 bps in the current policy easing cycle, the most in a calendar year since 2019.  

RBI Governor Sanjay Malhotra said the growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum. "The MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices," he said. 

Poll respondents, who see room for more easing, attributed benign inflation and slowing growth outlook as the primary reason. "Inflation outlook is largely optimistic with continued moderation in food prices and rangebound core inflation," Aditi Gupta, economist at Bank of Baroda, said in a report. "On the other hand, growth prospects though bright, face some pressures due to the drag from higher US tariffs."

The RBI has lowered its headline inflation projection for 2025-26 (Apr-Mar) by 60 bps to 2.0%. It sees inflation at 2.9% in the March quarter and 3.9% in Apr-Jun FY27. While growth remains resilient, Malhotra said it is expected to "soften somewhat". The central bank raised its GDP growth projection by 50 bps to 7.3% for FY26. 

At the post-policy press conference, Malhotra said that interest rates are expected to stay low going ahead with inflation staying benign. Malhotra stopped short of giving explicit guidance for future rate actions, saying MPC will go "policy by policy" and be data-dependent. "What rate it will be, that will be getting into speculation," Malhotra said.

Malhotra's comments and the retention of the neutral stance suggests "we are nearing the end of the rate-cut cycle", IDFC FIRST Bank Chief Economist Gaura Sen Gupta said in a report. "We expect a status quo in the February policy, as forward-looking inflation rises to 4% in H1FY27 (Apr-Sept 2027), in line with RBI estimate."

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

Reported by Pratiksha and Shubham Rana

Edited by Vandana Hingorani

RBI POLICY STORIES

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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 Friday in his address at the conclusion of the Monetary Policy Committee's fifth bi-monthly meeting for 2025-26 (Apr-Mar):

INTEREST RATES

The Reserve Bank of India's Monetary Policy Committee lowered the policy repo rate by 25 basis points to 5.25%, in a unanimous decision.

POLICY STANCE

The Reserve Bank of India's Monetary Policy Committee retained the 'neutral' policy stance but external member Ram Singh was of the view that the stance be changed to accommodative. 

GROWTH

The Reserve Bank of India raised its GDP growth projection for 2025-26 (Apr-Mar) to 7.3% from 6.8%. It also scaled up its growth estimates for the last two quarters of the year, with growth in Oct-Dec now seen at 7.0% against 6.4% projected earlier, and that in Jan-Mar expected at 6.5%, against 6.2% earlier. The central bank raised its GDP growth forecast for the first quarter of the next financial year to 6.7% from 6.4%. The RBI gave a GDP growth projection of 6.8% for the September quarter of FY27. 

INFLATION

The RBI cut its headline inflation forecast for the current quarter ending December by 120 basis points to 0.6% and lowered the projection for 2025-26 (Apr-Mar) by 60 bps to 2.0%. Governor Sanjay Malhotra said that underlying inflation pressures are even lower than projected, buoyed by a sharp fall in food prices and limited impact of a rise in prices of some precious metals.

The quarterly break-up of the central bank's latest inflation forecasts is as follows – 0.6% for Oct-Dec and 2.9% for Jan-Mar. It had previously forecast inflation in the third quarter to average at 1.8% and fourth quarter at 4.0%. Malhotra also revised the inflation projection for Apr-Jun FY27 to 3.9% from 4.5%. For Jul-Sept FY27, the central bank projected inflation to average 4%. "The risks are evenly balanced.

LIQUIDITY

System liquidity, as measured by the net position under the Liquidity Adjustment Facility, stood at an average daily surplus of INR 1.5 trillion for the period since the MPC last met in October. In response to the cumulative 100-bps cut in the policy repo rate, the weighted average lending rate of scheduled commercial banks has declined by 69 bps for fresh rupee loans during Feb-Oct. On the deposit side, the weighted average domestic term deposit rate on fresh deposits has declined by 105 bps, while that on outstanding deposits has softened by 32 bps over the same period.

The central bank is committed to provide sufficient durable liquidity to the banking system and continue to assess the durable liquidity requirements of the banking system due to changes in currency in circulation, forex operations, and reserve maintenance.

OPEN MARKET OPERATIONS

After reviewing the liquidity situation and the outlook, the Reserve Bank of India will conduct open market bond purchases of INR 1.00 trillion, along with a three-year dollar-rupee buy-sell swap of $5 billion, in December, to inject durable liquidity into the banking system.

EXTERNAL SECTOR

India's current account deficit moderated to 2.2% of GDP in Jul-Sept from 1.3% of GDP in the corresponding quarter a year ago, driven by robust services exports and strong remittances. In October, merchandise exports contracted year on year, whereas merchandise imports continued to increase for the second consecutive month, resulting in a widening of the trade deficit. India's merchandise exports contracted 11.9% on year to $34.4 billion, while imports rose sharply by 16.6% to $76.0 billion in October. Services exports during the month stood at $35.2 billion, up 2.2%, while services imports increased 2.9% to $17.7 billion. Net services exports grew 1.5% and stood at $17.4 billion. In Jul-Sept, India's services exports grew 8.8% on year, while services imports rose 3.7% with net services exports growing 14.5% during the same period. India's foreign exchange reserves fell by $1.90 bln to $686.2 billion in the week ended Nov. 28.

FOREIGN DIRECT INVESTMENT

India's gross foreign direct investment to India increased in Apr-Sept. Net FDI increased significantly due to a decline in repatriation despite a rise in outflows. Gross FDI flows to India rose 19.4% to $51.8 billion in Apr-Sept from $43.4 billion during the same period a year ago. Net FDI inflows increased a whopping 127.6% to $7.7 billion in first half of 2025-26 from $3.4 billion during the same period a year ago. However, foreign portfolio investment to India recorded net outflows of $0.7 billion so far this financial year due to outflows in the equity segment, he said.

FINANCIAL STABILITY

The system-level financial parameters related to capital adequacy, liquidity, asset quality and profitability of scheduled commercial banks remain robust. Similarly, the system-level parameters of NBFCs, too, are sound, with adequate capital position and improved gross non-performing asset ratios. The total flow of resources to the commercial sector has strengthened, bolstered by greater non-bank intermediation. In the current financial year so far, the total flow of resources was INR 20.1 trillion compared with INR 16.5 trillion in the corresponding period of the previous year. Outstanding credit from bank and non-bank sources increased 13% on year. Bank credit growth, too, has seen an uptick in recent months. Sector-wise data reveals that the growth was supported by sustained lending to retail and service sector segments. Industrial credit growth firmed up, aided by a buoyant credit flow to micro, small and medium enterprises. Large industries also recorded an improvement in credit growth.

CUSTOMER SERVICES AND FINANCIAL INCLUSION

The Reserve Bank of India will continue to focus on improving customer services and has taken several measures in this direction. Re-KYC (Renewal of Know Your Customer), financial inclusion and 'Aapki Poonji, Aapka Adhikar' campaigns are some of the initiatives have been initiated in association with other stakeholders. Further, the RBI has proposed to hold a two-month campaign from Jan. 1 to resolve all grievances pending for more than a month with the RBI Ombudsman, Malhotra said, urging regulated entities to support this initiative. 

Compiled by Vaishali Tyagi

Filed by Akul Nishant Akhoury

LIQUIDITY SEEN ABOVE 1% OF BANKS' NDTL AFTER OMO, FX SWAP

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Liquidity in the banking system will rise above 1% of banks' net demand and time liabilities with the infusion of around INR 1.50 trillion through the open market bond buys and the dollar-rupee buy-sell swap the Reserve Bank of India will conduct this month, RBI Governor Sanjay Malhotra said at the post-policy press conference Friday. Earlier in the day, Malhotra announced INR 1.00 trillion of open market operations purchases in two tranches and a dollar-rupee buy-sell swap of $5 billion to be held in December. 

At the press conference, Malhotra reiterated that the central bank would provide sufficient liquidity to the banking system to keep it in surplus and aid monetary policy transmission. In April, the governor had said the central bank aims to keep surplus liquidity at around 1% of banks' NDTL. Malhotra Friday said systemic liquidity need not be as high as the surplus the RBI has kept it in, if not for policy transmission. The central bank has kept the liquidity surplus largely between 0.6% and 1% of banks' NDTL, sometimes even higher, Malhotra said.

"As long as monetary policy transmission is happening... I want to again reiterate that we will provide sufficient liquidity so that the monetary policy transmission happens. So that's why it is a little surplus, it is on the higher side. Otherwise, you don't need so much of a liquidity," Malhotra said. "Perhaps, you can do with lower than the kind of liquidity that we have been providing as of now, which is not of the order of 1%, but which has been of the order of between 0.6% and 1% or so and sometimes going above also. I think with this 1.5 lakh (INR 1.50 trillion) it will go beyond 1%, so that's the range we're looking at." 

Malhotra said that more than the exact NDTL percentage being targeted, sufficient liquidity for bank reserves with the RBI was important. He said he is not targeting an exact number for liquidity, but "giving confidence to the system" that there will be enough liquidity in the rate-easing cycle. The governor said the central bank continues to maintain "ample" and "sufficient" liquidity.

As for OMO purchases, Malhotra said the central bank will not buy state bonds through this method. The RBI will conduct an INR-500-billion OMO purchase auction Thursday as well as on Dec. 18. The details of the bonds chosen for Thursday's auction were expected after 1700 IST, as Malhotra said they would be known in "a few hours". After 1700 IST, the RBI said it would buy seven gilts--the 6.75%, 2029 gilt, the 7.02%, 2031 gilt, the 7.26%, 2032 gilt, the 6.79%, 2034 gilt, the 7.54%, 2036 gilt, the 6.92%, 2039 gilt, and the 6.67%, 2050 gilt.

Malhotra said OMO auctions and the dollar-rupee buy-sell swap are not for pulling bond yields lower but primarily for liquidity infusion. The central bank targets securities for OMO based on demand and supply, he said. Going forward, the RBI will gauge liquidity requirements to decide whether more OMO auctions are needed. One of the main reasons bond yields slumped earlier this year was because of the RBI's OMO auctions, he added.

"...But keep in mind also that it is primarily, ultimately, end of the day, it will be the demand and supply," the governor said. "And so, we had created that excess supply through these OMOs that we did, which pushed it (bond yields) down, which I would feel perhaps was lower than (what) otherwise they would have been."

He said it has been the central bank's endeavour to provide a "diversified" and "balanced" supply of gilts across tenures, depending on the needs of the economy and on demand. The average maturity of gilts has increased over the years and there was perhaps a higher concentration of long-term gilt issuances in Apr-Sept. However, going ahead, long-term gilt supply has been reduced, as seen in the Centre's Oct-Mar borrowing calendar, he said. 

Malhotra said that as per the revised liquidity management framework released in September, the central bank aims to keep the operating target--which is the weighted average call rate--at the repo rate. The new framework gives the RBI the flexibility to conduct variable rate repo and variable rate reverse repo operations of tenures depending on its liquidity forecasts, he said. 

Reported by Cassandra Carvalho

Edited by Avishek Dutta and Rajeev Pai

FOCUS ON EXPANDING USE OF CENTRAL BANK DIGITAL CURRENCY: SANKAR

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The Reserve Bank of India is focused on creating unique use-cases for central bank digital currency, Reserve Bank of India Deputy Governor T. Rabi Sankar said Friday. The central bank is working with central and state governments, as well as banks, on experiments and pilots programmes on central bank digital currency features for specific schemes and products, he said.  

"The retail CBDC (central bank digital currency) is in good shape," Sankar said. "We are focusing on creating a unique use cases for CBDC." The retail CBDC is gaining traction, with over 8 million users and about 120 million transactions. The transaction value stands at around INR 280 billion. 

The RBI is experimenting with various programmable features, and cross-border arrangements are key focus areas for the central bank, aiming to make the central bank digital currency more accessible and widely accepted. "Going forward, we are hoping that some of them (central bank digital currency programmes) will become acceptable to an average user and that is largely the focus. The other focus is on getting cross-border arrangements in. So, overall, it is proceeding as per expectations."

At an event on Nov. 7, Sankar, who has been the key official behind India's digital currency, said the digital currency could play a bigger and better role in cross-border transactions. It would help in significantly cutting cost – currently paid to banks – for settling the transactions. However, to revolutionise cross-border digital currency payments, international agreements are needed to promote it collectively, the central banker said.  End

Reported by Vaishali Tyagi

Edited by Avishek Dutta

GOVERNOR SAYS WE DO NOT TARGET ANY PARTICULAR CREDIT GROWTH RATE

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The Reserve Bank of India does not maintain targets for banks' credit growth, Governor Sanjay Malhotra said in the post-monetary policy press conference. "We don't target any particular growth rate...monetary policy has a role only in the short term," he said, dismissing assumptions that credit growth should follow a fixed multiplier over GDP.

The RBI does not follow any metric that says bank credit should grow at twice the pace of GDP, Malhotra said, asserting that the central bank neither expects nor targets such ratios. "I don't know where you get the 2x figure...Last 10 years it's been more or less 1x...We don't target any particular growth rate for the economy," Malhotra said, stressing that structural factors, and not monetary policy, drive long-term credit expansion.

Malhotra added that with inflation remaining benign, the recent repo rate cut is expected to translate into softer deposit costs. "We do expect that going forward, especially after this repo rate cut, deposit rates will, to some extent, moderate," he said, noting that real interest rates are currently elevated for both borrowers and savers.

RBI Deputy Governor Swaminathan J. said the central bank sees no emerging stress in credit quality, particularly in retail lending--an area under greater scrutiny in recent months. "There are no indicators at this point in time which are creating a concern for us...overall retail loans have not shown any deterioration," he said. While unsecured personal loans saw a slight uptick in slippages, he said it was not meaningful enough to warrant regulatory action.

The RBI is also advancing efforts to clean up the large pool of unclaimed deposits parked with banks. Malhotra said the central bank is working on a more user-friendly portal to help customers locate such accounts and speed up settlements. "We are also looking at a portal...to help in identifying the accounts and reclaiming unclaimed assets," he said.

The Monetary Policy Committee Friday lowered the policy repo rate by 25 basis points to 5.25% in a unanimous decision. The committee retained its 'neutral' policy stance but external member Ram Singh was of the view that the stance be changed to accommodative.  

Reported by Kabir Sharma

Edited by Ashish Shirke

LIQUIDITY SEEN ABOVE 1% OF BANKS' NDTL POST OMO, FX SWAP

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Liquidity in the banking system will rise above 1% of banks' net demand and time liabilities with the infusion of around INR 1.50 trillion through the open market bond buys and the dollar-rupee buy-sell swap the Reserve Bank of India will conduct this month, RBI Governor Sanjay Malhotra said at the post-policy press conference Friday. Earlier in the day, Malhotra announced INR 1.00 trillion of open market operations purchases in two tranches and a dollar-rupee buy-sell swap of $5 billion to be held in December. 

At the press conference, Malhotra reiterated that the central bank would provide sufficient liquidity to the banking system to keep it in surplus and aid monetary policy transmission. In April, the governor had said the central bank aims to keep surplus liquidity at around 1% of banks' NDTL. Malhotra Friday said systemic liquidity need not be as high as the surplus the RBI has kept it in, if not for policy transmission. The central bank has kept the liquidity surplus largely between 0.6% and 1% of banks' NDTL, sometimes even higher, Malhotra said.

"As long as monetary policy transmission is happening... I want to again reiterate that we will provide sufficient liquidity so that the monetary policy transmission happens. So that's why it is a little surplus, it is on the higher side. Otherwise, you don't need so much of a liquidity," Malhotra said. "Perhaps, you can do with lower than the kind of liquidity that we have been providing as of now, which is not of the order of 1%, but which has been of the order of between 0.6% and 1% or so and sometimes going above also. I think with this 1.5 lakh (INR 1.50 trillion) it will go beyond 1%, so that's the range we're looking at." 

Malhotra said that more than the exact NDTL percentage being targeted, sufficient liquidity for bank reserves with the RBI was important. He said he is not targeting an exact number for liquidity, but "giving confidence to the system" that there will be enough liquidity in the rate-easing cycle. The governor said the central bank continues to maintain "ample" and "sufficient" liquidity.

As for OMO purchases, Malhotra said the central bank will not buy state bonds through this method. The RBI will conduct an INR-500-billion OMO purchase auction Thursday as well as on Dec. 18. The details of the bonds chosen for Thursday's auction were expected after 1700 IST, as Malhotra said they would be known in "a few hours". After 1700 IST, the RBI said it would buy seven gilts--the 6.75%, 2029 gilt, the 7.02%, 2031 gilt, the 7.26%, 2032 gilt, the 6.79%, 2034 gilt, the 7.54%, 2036 gilt, the 6.92%, 2039 gilt, and the 6.67%, 2050 gilt.

Malhotra said OMO auctions and the dollar-rupee buy-sell swap are not for pulling bond yields lower but primarily for liquidity infusion. The central bank targets securities for OMO based on demand and supply, he said. Going forward, the RBI will gauge liquidity requirements to decide whether more OMO auctions are needed. One of the main reasons bond yields slumped earlier this year was because of the RBI's OMO auctions, he added.

"...But keep in mind also that it is primarily, ultimately, end of the day, it will be the demand and supply," the governor said. "And so, we had created that excess supply through these OMOs that we did, which pushed it (bond yields) down, which I would feel perhaps was lower than (what) otherwise they would have been."

He said it has been the central bank's endeavour to provide a "diversified" and "balanced" supply of gilts across tenures, depending on the needs of the economy and on demand. The average maturity of gilts has increased over the years and there was perhaps a higher concentration of long-term gilt issuances in Apr-Sept. However, going ahead, long-term gilt supply has been reduced, as seen in the Centre's Oct-Mar borrowing calendar, he said. 

Malhotra said that as per the revised liquidity management framework released in September, the central bank aims to keep the operating target--which is the weighted average call rate--at the repo rate. The new framework gives the RBI the flexibility to conduct variable rate repo and variable rate reverse repo operations of tenures depending on its liquidity forecasts, he said. 

Reported by Cassandra Carvalho

Edited by Avishek Dutta and Rajeev Pai

STEP IN ONLY TO CURB ABNORMAL VOLATILITY IN RUPEE, SAYS MALHOTRA

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The Reserve Bank of India lets the rupee find its own position and only intervenes to reduce abonormal and excessive volatility in the currency market, RBI Governor Sanjay Malhotra said Friday. "These fluctuations, this volatility (in rupee) does happen, can happen," Malhotra said. "Our effort has been always to reduce any abnormal or excessive volatility. And that is what we will continue to endeavor."

His comments come at a time when the rupee has recently declined sharply and has been hitting record lows against the dollar, with the RBI intervening only in a limited manner to prevent depreciation. The rupee fell to a lifetime low of 90.4225 a dollar Thursday amid a prolonged delay in the India-US trade deal and foreign portfolio outflows. So far this year, the Indian unit has depreciated 5.2%. 

The governor reiterated that the central bank does not target any particular level for the rupee and only ensures orderly movement. "We don't target any price levels or any bands. We allow the markets to determine the prices," he said. "We believe that the markets in the long run, especially, are very efficient."

Malhotra does not think there has been any conscious attempt to change the central bank's tolerance to volatility. He added that the RBI's step to conduct a dollar-rupee buy-sell swap auction of $5 billion this month was just to support liquidity in the banking system and not to support the rupee. 

Talking about the International Monetary Fund's recent reclassification of India's de-facto exchange rate regime as a 'crawl-like' arrangement, from 'stabilised', Deputy Governor Poonam Gupta said, "I would not read much into it." "It's just based on the cross-country comparison of India having this much volatility compared to some other countries," she said. 

Reported by Pratiksha

Edited by Akul Nishant Akhoury

COMFORTABLE WITH EXTERNAL SECTOR POSITION, CAD, SAYS MALHOTRA

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

Despite global uncertainties and the 50% tariff imposed on Indian goods by the US, the Reserve Bank of India is very comfortable with respect to its external sector position and the level of India's current account deficit, Governor Sanjay Malhotra said. His comments came after data showed that India's CAD fell to $12.3 billion or 1.3% of GDP in the September quarter. 

"I do not expect the CAD to be as high as 2% (of GDP). So, on the external sector side, we are very comfortably positioned," Malhotra said at the post-policy press conference. The central bank holds enough reserves to manage the CAD, Malhotra mentioned. The RBI held $686.20 billion of foreign exchange reserves as of Nov. 28, which can provide a robust import cover of more than 11 months, the governor announced in his policy statement. 

"Given the strong fundamentals of our country, we should get good capital flows going forward," Malhotra said. While India had a net outflow of $5.7 billion in foreign portfolio investments in Jul-Sept, there was a net inflow of $2.9 billion in foreign direct investment in the same period. 

The 50% tariff by the US will impact sectors like textiles, leather, gems & jewellery, and shrimp, Malhotra said. But these sectors have a very small component in our total economy, the governor added.   

Reported by Krity Ambey

Edited by Akul Nishant Akhoury

RATES TO STAY LOW BUT MORE CUTS TO BE DATA DRIVEN, SAYS MALHOTRA

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

Interest rates in India are expected to stay low going ahead with inflation seen staying benign, Reserve Bank of India Governor Sanjay Malhotra said Friday. Whether the Monetary Policy Committee can further lower interest rates will depend on how data pans out, Malhotra said. 

"All I can say is that going forward, we expect benign inflation and so if inflation continues to be the way it is, we expect policy rates to be low and not high," Malhotra said at the post-policy press conference. "What rate it will be, that will be getting into speculation."

The RBI's MPC Friday lowered the repo rate by 25 basis points to 5.25%, bringing the total easing to 125 bps in 2025. Malhotra said the MPC decided to lower rates because of low inflation and with growth seen easing going ahead.

"Whether there is more space going forward, we are at neutral today," Malhotra said. "The more important thing now is that having reduced the policy repo rate by further 25 basis points, we have to now concentrate on the monetary policy transmission," Malhotra said. 

With inflation expected to stay benign going ahead, the MPC will wait to see the transmission of policy easing into the real economy, Malhotra said, adding that the panel will "take it policy by policy" depending on how growth-inflation dynamics behave.

CPI inflation fell to a record low of 0.25% in October and the central bank has now lowered its forecast for 2025-26 (Apr-Mar) by 60 bps to 2.0%. Malhotra said CPI inflation at around 0.2% is not right for India and the RBI targets 4%. Since underlying inflation is on the lower side, the MPC decided to lower rates, the governor said. Malhotra said real interest rates, which are adjusted for inflation, are quite high right now.

Asked about the impact of the falling rupee on inflation, Malhotra said RBI research shows that a 5% fall in the rupee against the dollar leads to a 35-bps rise in inflation and GDP growth by around 25 bps.

The RBI raised its GDP growth forecast for FY26 by 50 bps to 7.3% after the economy expanded quicker-than-expected at 8.2% in the September quarter. Despite the upgrade to the full-year forecast, GDP growth is expected to slow down during Oct-Mar. 

RBI Deputy Governor Poonam Gupta said that GDP growth is seen slowing in the coming quarters as the statistical effect of a favourable base normalises. Asked about the International Monetary Fund's 'C' grade assigned on India's national accounts data, Gupta said the IMF should be satisfied once India's GDP series is revised. 

The IMF last month retained 'C' grade for India's national accounts data and said that "some methodological weaknesses somewhat hamper surveillance". The statistics ministry will release the revised GDP series with 2022-23 as the base year at the end of February. 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

TO RETAIN FOCUS ON CUSTOMER SERVICE, GRIEVANCE REDRESSAL

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The Reserve Bank of India will continue to focus on improving customer services and has taken several measures in this direction, Reserve Bank of India Governor Sanjay Malhotra said while announcing the outcome of the three-day Monetary Policy Committee meeting Friday. "Re-KYC (Renewal of Know Your Customer), financial inclusion and 'Aapki Poonji, Aapka Adhikar' campaigns are some of the initiatives taken in association with other stakeholders," Malhotra said.

Earlier in the year, the RBI reviewed its Citizens Charter. It also publishes a monthly summary on application disposal and pendency on the first of every month, the governor said.

Malhotra said that over 99.8% of applications were disposed of within stipulated timelines, and added that in the recent past, receipt of a large number of grievances and pendency with the RBI Ombudsman has increased. "I exhort all regulated entities to keep customers central in their policies and operations, improve customer service and reduce grievances," Malhotra said. 

Further, the RBI has proposed to hold a two-month campaign from Jan. 1 to resolve all grievances pending for more than a month with the RBI Ombudsman, Malhotra said, urging regulated entities to support this initiative. 

Reported by Vaishali Tyagi

Edited by Avishek Dutta

INR-1-TLN OMO BOND BUY, $5-BLN FX SWAP TO INFUSE LIQUIDITY IN DEC

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

The Reserve Bank of India will conduct open market bond purchases of INR 1.00 trillion, along with a three-year dollar-rupee buy-sell swap of $5 billion, in December, to inject durable liquidity into the banking system, RBI Governor Sanjay Malhotra said in his statement at the outcome of the Monetary Policy Committee meeting Friday.

Traders in the bond market were expecting OMO purchases of INR 2.00 trillion or more, and had priced in a quantum of INR 1.50 trillion. Most traders in the bond and foreign exchange markets were not expecting a dollar-rupee buy-sell swap. Those who were, expected a quantum of $2 billion to $3 billion. Most traders had expected the OMO buys to be conducted in Dec-Mar.

In a separate release Friday, the RBI specified that the OMO purchases would be in two tranches. The RBI will conduct an INR-500-billion OMO purchase auction on Thursday as well as on Dec. 18. The buy-sell swap will held on Dec. 16. The RBI last held an OMO auction on May. 19. In Jan-May, the central bank infused over INR 5.00 trillion through OMO auctions.

The main purpose of conducting the open market purchases is liquidity management and not influencing yields on government bonds, Malhotra said. Yield on the benchmark 10-year government bond 6.48%, 2035 fell around 3 basis points immediately after the announcement of the auction.

The governor clarified that injection of liquidity through purchase of government securities under OMOs and that through short-term liquidity operations like variable rate repo and reverse repo auctions serve very different purposes. "So, it is quite possible that we inject durable liquidity through purchase of government securities under OMO on the one hand while simultaneously withdrawing transient liquidity through a VRRR operation on the other hand," Malhotra said.

In the three-year dollar-rupee buy-sell swap auction, the RBI will buy dollars for immediate delivery and will sell them for delivery after three years. The last such auction was conducted in March, when the central bank auctioned buy-sell swaps worth $10 billion using the multiple-price method. These measures will ensure adequate durable liquidity in the banking system and further facilitate monetary transmission, Malhotra said. 

Reported by Cassandra Carvalho and Kabir Sharma

Edited by Ashish Shirke

FX RESERVES $686.2 BLN AS OF NOV 28, CAN COVER 11 MOS OF IMPORTS

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

India's foreign exchange reserves fell by $1.90 bln to $686.2 billion in the week ended Nov. 28, Reserve Bank of India Governor Sanjay Malhotra said while announcing the outcome of the three-day Monetary Policy Committee meeting Friday. Malhotra said the reserves are sufficient to cover more than 11 months of merchandise imports. "Overall, India's external sector remains resilient. We are confident of meeting our external financing requirements comfortably," Malhotra said. 

The foreign exchange reserves in the week ended Nov. 28 were the lowest since the week ended May 16.

India's foreign exchange reserves fell in the week ended Nov. 21, after having risen the previous week. Data released by the Reserve Bank of India showed reserves fell $4.47 billion on week to $688.10 billion as of Nov. 21.

The governor said India's gross foreign direct investment to India increased in Apr-Sept. Net FDI increased significantly due to a decline in repatriation despite a rise in outflows. Gross FDI flows to India rose 19.4% to $51.8 billion in Apr-Sept from $43.4 billion during the same period a year ago. Net FDI inflows increased a whopping 127.6% to $7.7 billion in first half of 2025-26 from $3.4 billion during the same period a year ago. However, foreign portfolio investment to India recorded net outflows of $0.7 billion so far this financial year due to outflows in the equity segment, he said. 

Flows under external commercial borrowings and non-resident deposit accounts moderated in comparison to the previous year, Malhotra said. Net inflows under external commercial borrowings to India fell to $6.2 billion during Apr-Oct from $8.1 billion a year ago. Non-resident deposits recorded net inflows of $6.1 billion in Apr-Sept, lower than $10.2 billion for the corresponding period a year ago. "Overall, India's external sector remains resilient," Malhotra said. "We are confident of meeting our external financing requirements comfortably."

India's current account deficit moderated to 2.2% of GDP in Jul-Sept from 1.3% of GDP in the corresponding quarter a year ago, driven by robust services exports and strong remittances. "In October, merchandise exports contracted year-on-year, whereas merchandise imports continued to increase for the second consecutive month, resulting in a widening of the trade deficit," Malhotra said. "Healthy services exports coupled with strong remittance receipts are expected to keep CAD modest during 2025-26."

India's merchandise exports contracted 11.9% on year to $34.4 billion, while imports rose sharply by 16.6% to $76.0 billion in October. Services exports during the month stood at $35.2 billion, up 2.2%, while services imports increased 2.9% to $17.7 billion. Net services exports grew 1.5% and stood at $17.4 billion. In Jul-Sept, India's services exports grew 8.8% on year, while services imports rose 3.7% with net services exports growing 14.5% during the same period. 

Reported by Vaishali Tyagi

Edited by Avishek Dutta

BANKS' FINCL PARAMETERS REMAIN ROBUST, CREDIT HAS SEEN UPTICK

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

The Reserve Bank of India's Governor Sanjay Malhotra Friday said the financial parameters of banks remain robust and that the credit facilities are seeing an uptick. This growth was supported by sustained lending to retail and service sector segments, the governor said after announcing the fifth bi-monthly monetary policy for 2025-26 (Apr-Mar).

"...the system-level parameters of NBFCs (non-banking financial services companies), too, are sound, with adequate capital position and improved gross non-performing asset ratios," Malhotra said. The buoyant credit flow to micro, small and medium enterprises drove industrial credit growth, he said, adding that large industries, too, recorded better growth in credits. 

Supported by greater non-bank intermediation, the total flow of resources to the commercial sector strengthened, Malhotra said. So far in FY26, the total flow of resources rose to INR 20.1 trillion from INR 16.5 trillion in the year-ago period. Outstanding credit from bank and non-bank sources grew 13% on year, the apex bank governor said. 

The Monetary Policy Committee Friday unanimously reduced the repo rate by 25 basis points to 5.25%, trimming key rates by 125 bps so far in 2025. While this was largely in line with expectations, there was a section of market participants who expected the rate to be kept steady at 5.50%. The Committee retained its neutral stance, while external member Ram Singh of the policy committee was of the view that the stance should be changed to accommodative.  

Reported by Anjana Therese Antony

Edited by Deepshikha Bhardwaj

INDIA'S EXTERNAL SECTOR REMAINS RESILIENT, SAYS MALHOTRA

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

Reserve Bank of India Governor Sanjay Malhotra Friday said India's external sector remains resilient. As on Nov. 28, the country's foreign exchange reserves stood at $686.2 billion, providing a robust import cover of more than 11 months, the governor said. 

India's external debt-to-GDP ratio declined to 18.9% at the end of June from 19.1% at end-March, while the net international investment position moderated to (-)8.0% of GDP at end-June from (-)8.6% of GDP at end-March.

India's current account deficit moderated to 1.3% of GDP in Jul-Sept from 2.2% of GDP in the year-ago period on account of robust services exports and strong remittances, the governor said. Merchandise exports contracted year-on-year in October, whereas merchandise imports continued to increase for the second consecutive month, resulting in a widening of the trade deficit, he said.

In October, India's services exports were $35.2 billio, up 2.2% on year, while services imports of $17.7 billion increased 2.9% on year. Net services exports grew 1.5% on year and stood at $17.4 billion.

"Healthy services exports coupled with strong remittance receipts are expected to keep CAD (current account deficit) modest during 2025-26," Malhotra said. "On the external financing side, gross foreign direct investment to India increased at a robust pace during the first half of the year."

Net FDI also increased significantly due to a decline in repatriation despite a rise in outward FDI. Foreign portfolio investment to India recorded net outflows of $0.7 billion so far in 2025-26 (Apr-Mar), due to outflows in the equity segment, the governor said. "Flows under external commercial borrowings and non-resident deposit accounts moderated as compared to last year," Malhotra said, adding that the central bank was "confident of meeting our external financing requirements comfortably". 

With the repo rate lowered to 5.25%, the Standing Deposit Facility has come down to 5.00% and the Marginal Standing Facility and bank rate to 5.50%. Minutes of the December MPC meeting will be published on Dec. 19. The next meeting of the MPC is scheduled for Feb 4-6. 

Reported by J. Navya Sruthi

Edited by Avishek Dutta

RAISES FY26 GDP GROWTH VIEW TO 7.3%, ALSO UPS Q3, Q4 ESTIMATES

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

The Reserve Bank of India Friday raised its GDP growth projection for 2025-26 (Apr-Mar) to 7.3% from 6.8%. It also scaled up its growth estimates for the last two quarters of the year, with growth in Oct-Dec now seen at 7.0% against 6.4% projected earlier, and that in Jan-Mar expected at 6.5%, against 6.2% earlier.

The central bank raised its GDP growth forecast for the first quarter of the next financial year to 6.7% from 6.4. The RBI gave a GDP growth projection of 6.8% for the September quarter of FY27. The upward revisions to growth projections come after India's GDP grew at a six-quarter high pace of 8.2% in Jul-Sept. After the strong GDP growth in the September quarter, the finance ministry, which had projected FY26 GDP growth between 6.3% and 6.8%, also expects the economy to grow over 7% in the current year. 

But GDP growth, while remaining resilient, is expected to soften somewhat, RBI Governor Malhotra said in his policy statement. As such, considering the benign inflation outlook, the Monetary Policy Committee unanimously voted to cut the policy repo rate by 25 basis points to 5.25% to support growth. It decided to maintain its neutral stance.

External uncertainties pose downside risks to the growth outlook, Malhotra said, adding that the speedy conclusion of various ongoing trade and investment negotiations present upside potential. Among trade deals, a speedy conclusion of a trade deal with the US alone can significantly address India's external sector risks as it may bring down the tariff on Indian goods from the current 50%.

But even as merchandise exports face some headwinds, services exports are likely to remain strong, Malhotra said. India's services exports, at $35.17 billion in October, crossed the merchandise exports print of $34.38 billion for the month, down 11.8%.

The economy is strong-footed on the domestic front. "Rural demand continues to be robust while urban demand is recovering steadily. Investment activity remains healthy with private investment gaining steam on the back of expansion in non-food bank credit, and high capacity utilisation," Malhotra said. "On the supply side, agricultural growth is supported by healthy kharif crop production, higher reservoir levels and better rabi crop sowing. Manufacturing activity continues to improve, while the services sector is maintaining a steady pace."

High-frequency indicators suggest that domestic economic activity is holding up in Oct-Dec, although there are some emerging signs of weakness in a few leading indicators, Malhotra said. Overall, the risks to India's growth outlook are evenly balanced, the governor said.

As the economy enters the last eventful and challenging month of 2025, the year so far appears satisfactory, Malhotra said. Economic activity in the first half of the year benefited from low crude oil prices and the Goods and Services Tax reforms, he added.

The current dynamic of strong growth and benign inflation presents a rare Goldilocks period, the governor said, adding that it provides the RBI policy space to support growth. The central bank aims to support the economy in the next calendar year with new vigour, Malhotra said.

"Looking ahead, domestic factors such as healthy agricultural prospects, continued impact of GST rationalisation, benign inflation, healthy balance sheets of corporates and financial institutions and congenial monetary and financial conditions should continue to support economic activity," Malhotra said. "We will continue to meet the productive requirements of the economy in a proactive manner while ensuring macroeconomic stability." 

Reported by Krity Ambey

Edited by Avishek Dutta

CUTS REPO RATE BY 25 BPS TO 5.25%; ANNOUNCES OMO BUYS, FX SWAP

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

The Reserve Bank of India's Monetary Policy Committee Friday lowered the policy repo rate by 25 basis points to 5.25% in a unanimous decision, the central bank Governor Sanjay Malhotra said. The committee also retained the 'neutral' policy stance but external member Ram Singh was of the view that the stance be changed to accommodative. 

While the rate-setting panel's decision was broadly on expected lines, a large section of economists and market participants had said the MPC could hold interest rates after GDP data showed the economy had expanded much quicker than expected in the September quarter.

The committee has now lowered the repo rate by 125 bps 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.

Malhotra announced that the RBI would buy government securities of INR 1 trillion through open market operations and also conduct a three-year dollar/rupee buy/sell swap of $5 billion this month to inject durable liquidity into the system.

The RBI lowered its inflation projection for the current financial year by 60 bps to 2.0%. The central bank raised its GDP growth projection for FY26 to 7.3% from 6.8% earlier. 

Malhotra said that headline inflation is likely to be softer than the earlier projections while growth is expected to soften somewhat. "Thus, the growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum," the governor said. 

CPI inflation fell to a record low of 0.25% in October while GDP growth was higher than expected at 8.2% in the September quarter. The RBI raised the growth forecasts for the December quarter, March quarter and the June quarter of 2026. It pegged Jul-Sept 2026 GDP growth at 6.8%. 

Malhotra said that despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience and is poised to register high growth.

"The headroom provided by the inflation outlook has allowed us to remain growth supportive. We will continue to meet the productive requirements of the economy in a proactive manner while ensuring macroeconomic stability," he said. 

With the repo rate lowered to 5.25%, the Standing Deposit Facility has come down to 5.00% and the Marginal Standing Facility and bank rate to 5.50%. Minutes of the December MPC meeting will be published on Dec. 19. The next meeting of the MPC is scheduled for Feb 4-6.  

Reported by Shubham Rana

Edited by Deepshikha Bhardwaj

SLASHES Q3 CPI VIEW BY 120 BPS TO 0.6%, FY26 BY 60 BPS TO 2.0%

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

The Reserve Bank of India Friday cut its headline inflation forecast for the current quarter ending December by 120 basis points to 0.6% and lowered the projection for 2025-26 (Apr-Mar) by 60 bps to 2.0%. Governor Sanjay Malhotra said that underlying inflation pressures are even lower than projected, buoyed by a sharp fall in food prices and limited impact of a rise in prices of some precious metals.

"Food supply prospects have improved on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels, and conducive soil moisture," Malhotra said in his sixth monetary policy statement on Friday. "Barring some metals, international commodity prices are likely to moderate going forward," the governor added. "Overall, inflation is likely to be softer than what was projected in October."

The Monetary Policy Committee noted that the average CPI inflation this year was significantly below the target with growth in the first half of FY26 at a resilient 8%, placing the economy in a rare "Goldilocks" period. Drawing comfort from the record low inflation and possibility of exogenous pressures on growth, the rate-setting panel lowered the policy repo rate by 25 bps to 5.25%, while keeping the policy stance unchanged at 'neutral'. With this, the Monetary Policy Committee has lowered the headline repo rate by 125 bps so far in 2025. 

"The headroom provided by the inflation outlook has allowed us to remain growth supportive," Malhotra said. 

Latest available data shows retail inflation fell to a record low in October, thanks to a favourable base effect, continued fall in food prices, and lower goods and services tax rates. The headline print could have been even lower in October if not for the record high prices of gold and silver.

Data released on Nov. 12 showed CPI inflation fell to 0.25% in October from 1.44% in September. At 0.25%, the CPI inflation print is the lowest in the current series, which has data since 2014. Food inflation fell to (-)5.02% in October, the lowest in the current CPI series. Even sequentially, retail prices rose at a much lower pace of 0.2% in October than the average increase of 0.8% during the month in the last 12 years.

The quarterly break-up of the central bank's latest inflation forecasts is as follows – 0.6% for Oct-Dec, and 2.9% for Jan-Mar. It had previously forecast inflation in the third quarter to average at 1.8%, and fourth quarter at 4.0%. Malhotra also revised the inflation projection for Apr-Jun FY27 to 3.9% from 4.5%. For Jul-Sept FY27, the central bank projected inflation to average 4%. "The risks are evenly balanced." 

Core inflation--which excludes food and fuel items, whose prices can be volatile--is expected to remain anchored in the period ahead, the governor said. "Both headline and core inflation are expected to be at or below the 4% target during the first half of 2026-27," he said.

Gold and silver prices pushed up core inflation to 4.4% in October, the joint-highest in over two years, from 4.3% in September. The governor, however, said that underlying inflation pressures were even lower as the impact of an increase in price of precious metals was about 50 bps. "Excluding gold, core inflation moderated to 2.6% in October," he said. "Overall, the decline in inflation has become more generalised," the governor noted.

It is safe to say that the central bank has broadly made it through 2025 without significant inflationary pressures. According to Malhotra, the central bank and the Monetary Policy Committee will continue to meet the productive requirements of the economy in a proactive manner while ensuring macroeconomic stability. 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

EXCERPTS ON INFLATION FROM MPC'S STATEMENT

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

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

Headline CPI inflation declined to an all-time low in October. The faster than anticipated decline in inflation was led by correction in food prices, contrary to the usual trend witnessed during the months of September and October. Core inflation (CPI headline excluding food and fuel) remained largely contained in September and October, despite continued price pressures exerted by precious metals. Excluding gold, core inflation moderated to 2.6% in October. Overall, the decline in inflation has become more generalised.

Turning to the inflation outlook, food supply prospects remain bright on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels and conducive soil moisture. Barring some metals, international commodity prices are likely to moderate going forward. Overall, inflation is likely to be softer than what was projected in October, mainly on account of the fall in food prices. Considering all these factors, CPI inflation for FY26 is now projected at 2.0% with Oct-Dec at 0.6%; and Jan-Mar at 2.9%. CPI inflation for Apr-Jun and Jul-Sept are projected at 3.9% and 4.0%, respectively. In fact, the underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 basis points. The risks are evenly balanced. 

Compiled by J. Navya Sruthi

Filed by Ashish Shirke

EXCERPTS ON GROWTH FROM MPC'S STATEMENT

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

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

In India, real gross domestic product registered a six-quarter high growth of 8.2% in Jul-Sept, underpinned by resilient domestic demand amidst global trade and policy uncertainties. On the supply side, real gross value added expanded by 8.1%, aided by buoyant industrial and services sectors. Economic activity during Apr-Sept benefited from income tax and goods and services tax rationalisation, softer crude oil prices, front-loading of government capital expenditure, and facilitative monetary and financial conditions supported by benign inflation.

Looking ahead, domestic factors such as healthy agricultural prospects, continued impact of GST rationalisation, benign inflation, healthy balance sheets of corporates and financial institutions and congenial monetary and financial conditions should continue to support economic activity. Continuing reform initiatives would further facilitate growth.

On the external front, services exports are likely to remain strong, while merchandise exports face some headwinds. External uncertainties continue to pose downside risks to the outlook, while speedy conclusion of ongoing trade and investment negotiations present upside potential.

Taking all these factors into consideration, real GDP growth for FY26 is projected at 7.3%, with Oct-Dec at 7.0%; and Jan-Mar at 6.5%. Real GDP growth for Apr-Jun is projected at 6.7% and Jul-Sept at 6.8%. The risks are evenly balanced. 

Compiled by J. Navya Sruthi

Filed by Avishek Dutta

End

US$1 = INR 89.98

Compiled by Mayur Nijap

Filed by Akul Nishant Akhoury

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