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Informist, Friday, Feb. 6, 2025

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

LEAVES REPO RATE UNCHANGED AT 5.25%, STANCE AT NEUTRAL

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The Reserve Bank of India's Monetary Policy Committee Friday left the policy repo rate unchanged at 5.25% in a unanimous decision, the central bank's governor, Sanjay Malhotra, said. The committee also retained the 'neutral' policy stance even as external member Ram Singh was of the view that the stance be changed to accommodative from neutral.

The rate-setting panel's decision was on expected lines. Most economists and market participants polled by Informist expected the committee to hold interest rates, especially after US President Donald Trump announced a trade deal with India, which would bring tariffs on New Delhi down to 18% from 50%. 

The committee lowered the repo rate by 150 basis points in 2025, the most in a calendar year since 2019. It started lowering interest rates in February 2025 with a 25-bps cut, followed by another 25-bps cut in April, a larger-than-expected 50-bps reduction in June, and a 25-bps reduction in December, bringing the policy rate to 5.25%.

"Based on a comprehensive review of the domestic macroeconomic conditions and the outlook, the MPC (Monetary Policy Committee) is of the view that the current policy rate is appropriate," Malhotra said in his statement. "Going forward, the MPC will be guided by the evolving macroeconomic conditions and the outlook based on data from the new series in charting the future course of monetary policy."

The central bank deferred giving growth and inflation projections for 2026-27 (Apr-Mar) to April as the new GDP and CPI series would be released later this month, Malhotra said. 

The RBI raised the GDP growth forecast by 20 bps each for the June quarter and the September quarter to 6.9% and 7.0%, respectively. It also raised the CPI inflation projected for FY26 to 2.1% from 2.0%.

"Benign inflation provides the leeway to remain growth-supportive while preserving financial stability," the governor said. "We remain committed to meet the productive requirements of the economy and sustain the growth momentum."

With the repo rate left unchanged at 5.25%, the Standing Deposit Facility remains at 5.00% and the Marginal Standing Facility and bank rate at 5.50%. Minutes of the February MPC meeting will be published on Feb. 20. The next meeting of the MPC is scheduled for Apr 6-8. 

Reported by Shubham Rana

Edited by Avishek Dutta

RAISES Q4 CPI VIEW BY 30 BPS TO 3.2%, FY26 BY 10 BPS TO 2.1%

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The Reserve Bank of India Friday raised its headline inflation forecast for the current quarter ending March by 30 basis points to 3.2% and also hiked the projection for 2025-26 (Apr-Mar) by 10 bps to 2.1%. According to Governor Sanjay Malhotra, "despite the anticipated momentum being muted, unfavourable base effects stemming from large decline in prices observed in Jan-Mar of last year will lead to an uptick in inflation in the corresponding quarer this year."

"The slight upward revision in the inflation outlook is primarily due to increase in prices of precious metals, which contribute about 60-70 basis points. The underlying inflation continues to be low," Malhotra said in his monetary policy statement on Friday. "The outlook for CPI inflation in Apr-Jun and Jul-Sept continues to be benign and near the inflation target," the governor added. 

In Jan-Mar FY25, inflation had averaged 3.7%. As per latest data, India's headline CPI inflation rose to a three-month high of 1.33% in December from 0.71% in November because of an unfavourable base effect and a rise in core inflation. This was the last CPI print under the current series, which has 2012 as the base year. The statistics ministry will release a new CPI series with 2024 as the base year on Feb. 12.

Taking into account the growth-inflation dynamics, the Monetary Policy Committee Friday left the policy repo rate unchanged at 5.25% in a unanimous decision, while also retaining the 'neutral' policy stance. External member Ram Singh was of the view that the stance be changed to accommodative from neutral. 

"Benign inflation provides the leeway to remain growth-supportive while preserving financial stability," the governor said. "We remain committed to meet the productive requirements of the economy and sustain the growth momentum."

The quarterly break-up of the central bank's latest inflation forecasts is as follows – 4% for Apr-Jun, and 4.2% for Jul-Sept. It had previously forecast inflation in the first quarter of FY27 to average 3.9%, and the second quarter at 4.0%. Malhotra did not give projections for the final two quarters of FY27 and also for the full fiscal year starting Apr. 1.

Growth and inflation projections for FY27 will be announced after the April policy meeting after incorporating the new GDP and CPI series, Malhotra said. "Going forward, the MPC will be guided by the evolving macroeconomic conditions and the outlook based on data from the new series in charting the future course of monetary policy," he added.

The statistics ministry is currently revising three economic indicators – CPI, IIP, and GDP – with new base years and methodologies after over a decade. The current base year of CPI is 2012 and that of GDP and IIP is FY12. The new series of the three indicators will have increased coverage and updated methadologies based on the current economic environment.  

According to the central bank governor, the near-term outlook suggests that food supply prospects remain bright on the back of healthy kharif production, sufficient buffer stocks of foodgrains, favourable rabi sowing, and adequate reservoir levels. 

Core inflation--which excludes food and fuel items, whose prices can be volatile--is expected to be range-bound, barring potential volatility induced by prices of precious metals. As per latest data, core inflation in December rose to a 28-month high of 4.6%, led by gold inflation, which increased to a record high of 68.66%. Silver inflation, too, rose to a record high of 97.07% in December, which pushed core inflation higher. 

"Excluding precious metals, the underlying inflation pressures remain muted. The risks are evenly balanced," Malhotra said.

While the inflation outlook is contained, if not rosy, geopolitical uncertainty coupled with volatility in energy prices and adverse weather events pose upside risks, the governor said. In the past, geopolitical risks and volatility in energy prices complicated inflation management in India, making the Monetary Policy Committee stand pat on interest rates at a high level for months, even when growth needed support.

Malhotra said inflation remains below the tolerance band, and its outlook continues to be benign. "Overall, the near-term domestic inflation and growth outlook remain positive," he said. 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

RAISES GROWTH VIEW FOR APR-JUN, JUL-SEPT, DEFERS FY27 ESTIMATE

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The Reserve Bank of India Friday raised its GDP growth projection for the June quarter of 2026-27 (Apr-Mar) to 6.9% from 6.7%, and that of the September quarter to 7% from 6.8%. The central bank deferred the estimate for FY27 to April, after the base year for GDP is revised in February. 

The finance ministry, in its Economic Survey for FY26, projected GDP growth for FY27 in the range of 6.8–7.2%. The Indian economy is projected to grow 7.4% in the current financial year, according to the statistics ministry's first advance estimate. RBI Governor Sanjay Malhotra described that, at this pace, the real GDP is poised to register "significantly higher" growth in FY26.   

"The Indian economy continues to register high growth despite a challenging external environment, clouded by geopolitical uncertainties," Malhotra said in his post-policy statement. Benign inflation provides the leeway to remain growth-supportive while preserving financial stability."

The RBI's monetary policy committee, which met Wed-Fri, decided to unanimously leave the policy repo rate unchanged at 5.25%. The panel also retained the 'neutral' stance even as external member Ram Singh was of the view that the stance be changed to 'accommodative'.

High-frequency indicators show strong economic growth momentum in the December quarter of FY26 and beyond, Malhotra said. India's GDP had grown at a six-quarter high pace of 8.2% in the September quarter.

The RBI's growth outlook remains favourable. However, spillovers emanating from geopolitical tensions, volatility in international financial markets and shifting trade patterns pose risks to the outlook. Net external demand has remained a drag, with imports outpacing exports. "External headwinds have intensified, though the successful completion of trade deals augurs well for the economic outlook," Malhotra said.

Services exports should remain resilient, and the recently concluded free trade agreement with the European Union and the prospective India-US trade deal along with several other trade agreements will support exports over the medium-term, Malhotra said. The tariff concession under the India-EU trade deal is likely to take effect by the end of 2026, and will be helpful to Indian exports in the medium-term. On the other hand, the duty reduction to 18% from 50% under the pact with the US will be implemented in a few days.   

Some measures announced in the Union Budget for FY27 should also be conducive for growth, the governor said. Some of the growth-conductive measures in the Budget include the setting up of the MSME Growth Fund, India Semiconductor Mission 2.0, regional medical hubs, new freight corridors, the Infrastructure Risk Guarantee Fund, chemical parks, the introduction of scheme for enhancement of construction and infrastructure equipment, scheme for container manufacturing, and integrated programme for labour-intensive textile sector.

The economy is strong-footed on the domestic front. "Rural demand remains steady, with improving agricultural activity and rural labour market conditions. Recovery in urban consumption should further strengthen with continued support from Goods and Services Tax rationalisation and monetary easing," Malhotra said. "High capacity utilisation, accelerating bank credit, conducive financial conditions, and the government's continued emphasis on infrastructure should give an impetus to investment activity." The government has set its capital expenditure target for FY27 at INR 12.22 trillion.

Going ahead, India's economic activity is expected to hold up well in FY27. "Agricultural activity will be supported by healthy reservoir levels, robust rabi sowing, and improvement in crop vegetation conditions," Malhotra said. "Improving corporate sector performance and sustained momentum in the informal sector should boost manufacturing activity. Construction sector growth is expected to remain firm."

"We remain committed to meet the productive requirements of the economy and sustain the growth momentum," the RBI governor said. 

Reported by Krity Ambey

Edited by Deepshikha Bhardwaj

TO MANAGE GOVT'S FY27 BORROW PLAN EFFICIENTLY, SAY RBI OFFICIALS

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The Reserve Bank of India will be able to manage the government's record borrowing programme for 2026-27 (Apr-Mar) quite efficiently, the central bank's top officials said during a post-policy press conference on Friday.

The government has pegged its gross market borrowing at a record INR 17.20 trillion in FY27 in the Union Budget presented Sunday, up from INR 14.61 trillion in the revised estimate for the financial year ending March. The on-year rise in gross borrowing is not significant at all when placed in a historical context, RBI Deputy Governor T. Rabi Sankar said. He drew a comparison to the period between FY20 and FY23, during which the market borrowing more than doubled to nearly INR 15 trillion from around INR 7 trillion.

"...the borrowing programme the government is looking (at) is much on the lower side and they should be able to raise these kind of resources at very reasonable prices," RBI Governor Sanjay Malhotra said at the press conference.

The governor also stressed the need to focus on net market borrowing rather than gross market borrowing, which had risen due to the increase in repayments. Net market borrowing was pegged at INR 11.73 trillion in FY27 from a Budget Estimate of INR 11.54 trillion for FY26 and a revised estimate of INR 11.33 trillion. Budgeted repayment rose to around INR 5.5 trillion from around INR 3.3 trillion the previous year. Economic Affairs Secretary Anuradha Thakur had also termed the borrowing plan as "not high" and said the government had a plan to manage its repayments. 

Treasury bills will also help in managing the yield curve better, while the government's projections for borrowing from the national small savings fund were conservative, Malhotra said. In FY27, the government projects net T-bill issuance at INR 1.3 trillion, compared with nil for FY26. Small savings borrowing is seen only 4% higher on year at INR 3.86 trillion in FY27, and it is budgeted to fund only 22.8% on the fiscal deficit in FY27, down from 23.9% in the revised estimate for the current fiscal. 

Asked about switches and buybacks of government bonds, Sankar said that buybacks from the government would get factored in over the course of the fiscal year. The government had set a gilt switch target of INR 2.50 trillion in FY27, the same as in FY26, but did not provision for buybacks. It did not conduct a gilt switch auction in January after having met its gilt switch target of INR 2.50 trillion for FY26 through market switches and gilt buybacks in Apr-Dec. The government had not accounted for buybacks in the last two financial years, but bought back INR 867.76 billion in FY26 and INR 881.64 billion in FY25 of gilts maturing in subsequent years.

The central bank officials did not comment further on gilt switches. Some market participants had expected the RBI and the government to conduct another bilateral switch for the RBI's bondholdings maturing in FY27 to bring down the scheduled redemptions, either before or after the presentation of the Budget. The RBI switched INR 373 billion of bonds maturing in FY27 with the government in May.

The Monetary Policy Committee Friday left the policy repo rate unchanged at 5.25% in a unanimous decision. The committee also retained the 'neutral' policy stance even as external member Ram Singh was of the view that the stance be changed to 'accommodative' from neutral. Despite the comments from RBI officials on the borrowing programme and on being proactive and pre-emptive in managing liquidity, the 10-year benchmark gilt yield rose 10 basis points to 6.75%, as of 1534 IST.

Reported by Aaryan Khanna

Edited by Tanima Banerjee

COMFORTABLE WITH BANK GOLD LOAN LEVELS, REVIEWING ALL PORTFOLIOS

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The Reserve Bank of India is comfortable with banks' current gold loan portfolios, with low slippage rates and good asset quality, Governor Sanjay Malhotra said Friday. "On the gold loans, we are very comfortable... we have been reviewing all the portfolios, whether it is gold loans, whether it is MSMEs (micro, small, and medium enterprises), or whether it is personal loans, all categories show good asset quality, low slippages, and no cause for any concern," Malhotra said. 

He said the loan-to-value ratios for gold loans are on the lower side, despite banks having a higher limit of up to 85%. "The LTV ratios for the gold loans are quite low, although we have a higher limit going up to even 85%, depending on the amount of loan, but the LTV (loan-to-value) ratios being maintained by the banks, as well as the NBFCs (non-banking financial companies), are on the lower side."

Banks are shifting towards safer assets due to higher slippages in unsecured segments, such as microfinance institutions and personal loan portfolios, leading to a pickup in collateralised loans, such as gold loans. Gold prices have also contributed to this shift. Importantly, the overall loan-to-value ratio remains comfortable at below 70%, Deputy Governor Swaminathan J. said. "We have even permitted slightly higher LTV (loan-to-value)... at the system level, it is below 70%," Swaminathan said. 

"So, there is absolutely no concern in terms of percentage, as the overall pie that it has in the bank credit. And second is that LTV (loan-to-value) levels are even comfortable at this point in time, so there is no worry," Swaminathan said.

Asked whether gold loan growth is driving credit growth, Swaminathan J. said, "Gold loan as a proportion of total lending is something we will have to see... and that increase is not something which is unexpected."

Loans to the agriculture sector have grown by 12%, and industry loans by 13%, while personal loans have grown slightly above 14%. So, no particular segment has contributed more or less, Swaminathan said.

Reported by Vaishali Tyagi

Edited by Saji George Titus

TO RELEASE REFINED DRAFT GUIDELINES FOR AUTHORISED FX DEALERS

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The Reserve Bank of India has reviewed and rationalised the regulatory framework governing the facilities for authorised dealers, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee meeting on Friday. These refined regulation will allow "more flexibility in undertaking foreign exchange transactions," Malhotra said.

Banks and standalone primary dealers authorised under the Foreign Exchange Management Act, 1999, access the foreign exchange market for market making, balance sheet management and hedging of risks, the RBI said. "The revised framework provides these ADs (authorised dealers) with greater flexibility with respect to foreign exchange products, risk management and platforms," it said. 

An authorised dealer in foreign exchange is a bank or financial institution, specifically authorised by the RBI under Section 10(1) of the Foreign Exchange Management Act (FEMA), 1999, to buy, sell, or remit foreign currency. These dealers include AD-I banks, primary dealerships, and money changers. 

The draft for these updated guidelines will be issued shortly, the RBI said. On Friday, the rate-setting panel left the policy repo rate unchanged at 5.25% in a unanimous decision. It also retained the 'neutral' policy stance even as external member Ram Singh was of the view that the stance be changed to 'accommodative' from 'neutral'.

Reported by Kabir Sharma

Edited by Tanima Banerjee

US TRADE PACT IMPACT ON RUPEE RELIES ON DEAL DETAILS - MALHOTRA

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The impact of the trade deal between India and the US on the rupee depends on the details of the pact once it is signed, Reserve Bank of India Governor Sanjay Malhotra said Friday. "The trade deal has not happened yet, it has just been announced. You have seen how much rupee has strengthened after the announcement," he said at the post-policy press conference. "Once trade deal happens, it (rupee) will depend on what the details of the trade deal are." 

On Monday, India and the US announced a trade deal, which reduced US tariffs on Indian goods to 18% from 50%. Following the trade deal announcement, the Indian currency surged 1.4% against the dollar Tuesday, posting its biggest single-day gain in over seven years. The two countries will issue a joint statement within four or five days, Commerce Minister Piyush Goyal said on Thursday. 

Malhotra added that the multilateral trade deals signed by the government will help support an already "very, very comfortable current account". India and the European Union last month agreed to a free trade agreement, touted as the "mother of all deals".

"On top of this, with all these deals, agreements, it should only further help, not only on the current account, on the trade side, merchandise and services, but also on the investment side, because a lot of them have investment commitments," he said. The governor expects robust services exports and healthy inward remittance receipts to keep India's current account deficit for 2025-26 (Apr-Mar) moderate and sustainable.

Malhotra reiterated that the central bank does not target any level of the rupee and only intervenes when there is any undue volatility or excessive volatility in the exchange rate. "We don't intervene normally. Whether it is up movement or down, depreciation or appreciation, we don't generally, we stay away," he said. 

He, however, added that it does not mean that the RBI will stay away from the currency market even if there are speculative bets getting built in in the currency market. "When there is an appreciation of the rupee happening, I don't see, as of now, or even going forward, I do not see any kind of a speculative element getting built in," he said. "So, if it is not there, we will let the markets play out and see where the rupee is headed, whether it is with respect to the dollar, or whether it is with respect to any other currency."

Malhotra also clarified that the recent decline in the RBI's holding of the US Treasury was on the back of a reduction in India's foreign exchange reserves and not because RBI is selling its holdings. "Our forex reserves had come down. So as a result of that, all holdings would come down, so they will change," he said. "So those are fluctuations on a day-to-day or a week-to-week basis that we give out. But there is no reduction in our holdings of the US treasury." 

India's holdings of US Treasury had dropped to $186.50 billion as of November, sharply down from $234 billion in November 2024, according to data by the department of US Treasury.  

Reported by Pratiksha

Edited by Vandana Hingorani

TO ISSUE GUIDELINES ON ADVERTISING, SALE OF FINANCIAL PRODUCTS

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The Reserve Bank of India Friday said it will issue comprehensive instructions to regulated entities on advertising, marketing, and sales of financial products and services in view of the significant consequences of mis-selling of financial products and services. The draft instructions will be issued shortly for public consultation, the RBI said in its statement on developmental and regulatory policies.

"There is a felt need to ensure that third-party products and services that are being sold at the bank counters are suitable to customer needs and are commensurate with the risk appetite of individual clients," the statement said. 

The central bank also said it has decided to review the instructions related to the engagement of recovery agents and the conduct aspects of loan recovery. Currently, there are different sets of instructions applicable to different categories of regulated entities regarding the engagement of recovery agents, the central bank said.

"It has now been decided to review and harmonise all the extant conduct-related instructions on engagement of recovery agents and other aspects related to recovery of loans," the RBI said. The draft instructions on this will be issued shortly for public consultation, it said.

The central bank is also reviewing instructions on limiting customer liability for unauthorised electronic banking transactions. In view of the rapid adoption of technology in the banking sector and payments systems, the existing instructions have been reviewed, and revised draft instructions, including a framework for compensation in case of small-value fraudulent transactions, will be issued shortly, the RBI said. 

Announcing the monetary policy, RBI Governor Sanjay Malhotra said the framework will include compensation of up to INR 25000 to customers for losses incurred from small-value fraudulent transactions. 

Reported by J. Navya Sruthi

Edited by Saji George Titus

PLANS FRAMEWORK TO COMPENSATE CUSTOMERS HIT BY SMALL-TICKET FRAUD

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The Reserve Bank of India will introduce a framework to compensate customers up to INR 25,000 for loss incurred in small-value fraudulent transactions, Governor Sanjay Malhotra said Friday. This framework will be part of the measures the central bank will undertake for customer protection.

"It has been our conscious effort that we continue to improve customer centricity, customer experience, and customer delight that all of you, including us, as customers expect from banks, NBFCs (non-banking financial institutions), and the regulated entities," the governor said in the post-policy press conference.

Under the framework, Malhotra said, customers can claim protection only once during their lifetime, to ensure the same mistake is not repeated. Want customers to be careful, and course correct, Malhotra said, adding that a particular mistake can be forgiven once.

Under the framework, customers will get either 85% of the loss incurred or INR 25,000, whichever is lower, as compensation. Explaining the same, Malhotra said if an individual incurs a loss of INR 20,000, 85% of that would be INR 17,000. This means, the customer will be given a compensation of INR 17,000 as it is lower than INR 25,000.

Besides this framework, the central bank will also launch three draft guidelines for customer protection – relating to mis-selling, regarding recovery of loans and engagement of recovery agents, and on limiting liability of customers in unauthorised electronic banking transactions. 

Speaking about mis-selling, an issue that has been raised by the government and its regulators multiple times over the last couple of years, the governor Friday reiterated that "this has been a concern." The RBI has now "codified" it, and will issue the draft guidelines accordingly, he said.

According to the governor, the issue of mis-selling, though prevalent, is not seen across the system. It is quite low, but even one case is important, and so it is a concern, he said. The draft guidelines will have multiple provisions like identifying dark patterns, and the central bank is hopeful it will help contain the problem further.

Mis-selling is the deliberate sale of financial products that are unsuitable for the customer's specific needs, often driven by high commissions. It involves sharing wrong information, failing to disclose risks, or using pressure tactics to convince customers to buy products they do not need or understand.   

Reported by Priyasmita Dutta

Edited by Ashish Shirke

TO ENSURE SUFFICIENT LIQUIDITY; MGMT TO BE PRE-EMPTIVE, PROACTIVE

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The Reserve Bank of India will remain proactive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy and to facilitate monetary policy transmission, Governor Sanjay Malhotra said Friday. "Liquidity management would be pre-emptive with sufficient allowance for unanticipated fluctuations in government balances, changes in currency in circulation, forex intervention, etc.," the governor said at the Monetary Policy Committee's sixth bi-monthly meeting for 2025-26 (Apr-Mar).

Systemic liquidity, as measured by the net position under the liquidity adjustment facility, was at a surplus of INR 700 billion on a daily average since the last policy meeting on Dec. 5, Malhotra said. The central bank has infused INR 4 trillion of durable liquidity through open market operations auctions and around $25 billion through dollar-rupee buy-sell swap since the last policy meeting in December.

In FY26, the RBI reduced the repo rate by 125 basis points. This led to a 105-bps decline in the weighted average lending rate of scheduled commercial banks for fresh rupee loans during February and December. The interest rate effect is 94 bps. The weighted average domestic term deposit rate on fresh deposits declined by 95 bps, while that on the outstanding deposits softened by 41 bps over the same period, the governor said.

The governor said rates on commercial papers and certificates of deposit tightened in January due to moderation in surplus liquidity and excess supply on the back of redemptions in CPs and CDs the same month. Year-end seasonal effects added to the uptick in rates on CPs and CDs.

Rates on three-month CDs rose to 7.20-7.25% in January from 5.99-6.07% in December, and those on one-year CDs were up at 7.20-7.25% in January from 6.60-6.70% in December. However, to control rates, the central bank had provided continuous transient liquidity into the banking system.

Addressing the media after the policy announcement, the governor reiterated that it is the RBI's duty to provide ample liquidity and manage it pre-emptively. "Our duty is to provide liquidity to meet the economy's productive needs. To be able to ensure that monetary policy transmission happens, not only in the overnight markets, the money markets, the government security markets, the corporate, the credit markets, all the markets," Malhotra said.

The governor added that monitoring liquidity is a continuous process and "have provided it outside policy". "We have OMO (auctions), (long-term, short-term) VRRs, VRRRs to ensure that we give liquidity, and we keep the overnight liquidity at the policy repo rate."

The RBI had conducted 25 short-term variable rate repo auctions through which it infused over INR 13 trillion of transient liquidity into the banking system between mid-December and end of January. The central bank had also infused INR 1.37 trillion of temporary liquidity through two 90-day VRR auctions on Jan. 30.

Commenting on the changes in liquidity coverage ratio, Malhotra said the central bank is not looking at changing the liquidity management framework immediately. "Liquidity management framework is complex due to market linkages," the governor said.

He added that the RBI prioritises liquidity over the credit-deposit ratio. Bank deposits, which were INR 245 trillion as of Jan. 15, have not grown as much as credit and this has pushed the credit-deposit ratio of banks to a high of 82%. The ideal range for the ratio is 76–80% for Indian banks and a ratio exceeding 80% can strain liquidity.

Reported by J. Navya Sruthi

Edited by Ashish Shirke

NEUTRAL STANCE SHOWS RATES TO STAY HERE FOR A YEAR - MALHOTRA

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The neutral stance of the Monetary Policy Committee shows panel members expect interest rates to stay at current levels going ahead, Reserve Bank of India Governor Sanjay Malhotra said Friday. Interest rates are seen at "low levels" for a long time and the committee will take decisions to further rate cuts from "policy to policy", he said. 

The Committee Friday left the policy repo rate unchanged at 5.25% in a unanimous decision. The committee also retained the 'neutral' policy stance even as external member Ram Singh was of the view that the stance be changed to accommodative from neutral.

Asked if the repo rate at 5.25% should be considered as the terminal rate, Malhotra said it is for the MPC to answer. "We will continue to be data dependent. We are at a neutral phase, other than one member who wanted to change the stance from neutral to accommodative," Malhotra said.

"All others are at neutral, which means given the state of economy that is today and that we forsee going ahead, over nine-month to one-year period, this is the rate that we expect to be there," the governor said. 

Malhotra said he expects policy rates to remain at low levels for a long period of time. "Whether they will go down even further, I will leave it for the MPC to decide going forward."

The Indian economy is in a good spot with underlying inflation seen staying benign, even as headline inflation may rise or fall, Malhotra said. Growth outlook, meanwhile, has improved since the last meeting of the rate-setting panel, the governor said. 

According to the RBI governor, the real rate of interest is still high. India's neutral rate of interest--the real interest rate that is neither expansionary nor contractionary for the economy-–was 1.4-1.9% during Jan-Mar 2024, according the last official central staff paper on real rates.

Real interest rate is the rate of return over and above the expected rate of inflation in an economy. "So if inflation going forward is 3-4%, then we are more or less neutral or below neutral rates. We continue to be in this space. We'll take it policy by policy," Malhotra said. 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

AWAITING US TRADE DEAL DETAILS TO GAUGE IMPACT ON GDP - MALHOTRA

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The Reserve Bank of India is awaiting the details of the recently concluded trade deal between India and the US to assess its impact on India's economic growth trajectory and currency movement, RBI Governor Sanjay Malhotra said Friday. So far, it is only known that the US will cut tariffs on Indian goods to 18% from 50% under the deal. 

India and the US are likely to issue a joint statement on the trade agreement in the next 4–5 days, which may shed some light on the details of the deal. The White House will lower the tariff on Indian goods through an executive order after the joint statement, according to Commerce Minister Piyush Goyal. But final clarity on the offers and commitments are likely to emerge only after both sides sign the agreement. Currently, the two nations are engaged in drafting a formal agreement and aim to sign it by mid-March, Goyal has said.

Since the announcement of the trade deal with the US late Monday, rupee has appreciated by nearly INR 1.5 per dollar, Malhotra said at the post-policy press conference. Further impact on the movement of the rupee will depend on the details of the trade deal, Malhotra added. The rupee closed at 90.35 against the dollar on Thursday, compared with 91.51 a dollar on Monday.

The central bank has deferred its GDP growth projection for the next financial year to April, after the base year for GDP is revised in February. The growth estimate for 2026–27 (Apr-Mar) in April will likely factor in the impact of the US trade deal also, as the details of the pact are likely to be out by then.

Besides the trade deal with the US, India concluded trade negotiations with four more trading partners in FY26, which are set to augur well for the economy going ahead, according to Malhotra. "Lot of trade deals have investment commitments," Malhotra said. "These are in the domain of the government, the regulators are there primarily to facilitate whatever economic activity happens." 

Reported by Krity Ambey

Edited by Akul Nishant Akhoury

TO ISSUE FRAMEWORK FOR CORP BOND DERIVATIVES, TOTAL RETURN SWAPS

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In a move to deepen the corporate bond market, the Reserve Bank of India proposed to introduce a regulatory framework for derivatives on corporate bond indices and total return swaps on corporate bonds, RBI Governor Sanjay Malhotra said after the sixth bi-monthly meeting of the Monetary Policy Commitee for 2025-26 (Apr-Mar). 

"Furthermore, in pursuance of the announcement made in the Union Budget 2026-27 (Apr-Mar), we propose to issue the regulatory framework for derivatives on corporate bond indices and total return swaps on corporate bonds," Malhotra said.

The government plans to introduce a market-making framework to develop the corporate bond market, Finance Minister Nirmala Sitharaman had announced in the Union Budget for FY27 Sunday. This framework will provide suitable access to funds and derivatives on corporate bond indices, as well as total return swaps on corporate bonds, aiming to deepen market participation and improve liquidity, Sitharaman had said.

"An active derivatives market can facilitate efficient management of credit risks, improve liquidity and efficiency in the corporate bond market and facilitate issuance of corporate bonds across the rating spectrum," the RBI said. Necessary directions for the same will be issued shortly for public feedback, the central bank added.

In another announcement, the RBI also proposed removing the limit of INR 2.5 trillion for investments under the Voluntary Retention Route. Investment through the Voluntary Retention Route in each category of securities will be subject to the investment ceiling for the respective category under the general route. The RBI has also decided to provide additional operational flexibilities for foreign portfolio investors investing through the Voluntary Retention Route. The RBI will issue separate necessary directions on it.

The Voluntary Retention Route was introduced by the RBI in March 2019 to provide an additional channel for investments by FPIs with long-term investment interest in the Indian debt markets. "Over the years, the Bank has been recalibrating the route to improve operational flexibilities and ease of doing business. The VRR has been witnessing active investment by FPIs, and over 80% of the current investment limit of Rs. 2.5 lakh crore (INR 2.5 trillion) has been utilised," the RBI said. "With a view to ensuring predictability about the availability of investment limits under the Voluntary Retention Route and to further increase ease of doing business." 

Reported by Vaishali Tyagi

Edited by Tanima Banerjee

TO RATIONALISE NORMS FOR UNSECURED LOANS BY URBAN CO-OP BANKS

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The Reserve Bank of India has proposed to rationalise regulatory norms applicable for unsecured loans by urban co-operative banks, Governor Sanjay Malhotra said while delivering the outcome of the February meeting of the Monetary Policy Committee on Friday. It has also proposed to rationalise norms for lending to nominal members and the tenor and moratorium requirements for housing loans, Malhotra said. 

"The proposed review shall adopt inter alia, a tiered and simplified approach while maintaining prudential discipline, taking into consideration the growth in total loans and advances of the UCBs over the past few years. Draft directions in this regard will be issued shortly for public consultation," the statement said.   

The rate-setting panel left the policy repo rate unchanged at 5.25% in a unanimous decision. It also retained the 'neutral' policy stance even as external member Ram Singh was of the view that the stance be changed to accommodative from neutral.

The central bank will also launch 'SAKSHAM (Sahakari Bank Kshamta Nirman)' - a sector-wide capacity-building and certification framework, Malhotra said. The capacity building of the sector would be implemented through a large number of physical training programmes as well as a scalable learning platform, to cover about 140,000 participants across all functions, the RBI said. 

Reported by Kabir Sharma

Edited by Avishek Dutta

TO ISSUE FINAL EXTERNAL COMMERCIAL BORROWING NORMS SHORTLY

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The Reserve Bank of India will issue the final norms on external commercial borrowing shortly, Governor Sanjay Malhotra said Friday. "...we had earlier issued revised draft regulations for ECBs. They have been finalised and shall be notified shortly," Malotra said while presenting the sixth bi-monthly monetary policy statement. 

The draft external commercia borrowing norms were proposed after the October Monetary Policy Committee meeting. Feedback on the regulations were to be submitted to the RBI by Oct. 24.

One of the key changes suggested in the draft norms include liberalising borrowing limits imposed on entities. As per the draft norms, borrowers can borrow up to $1 billion or 300% of the net worth, whichever is higher, compared to the current cap of $750 million per financial year under the automatic route. However, financial sector entities like banks and non-bank finance companies, already under regulatory oversight, are exempt from this cap.

The draft norms also proposed flexible currency options, permiting borrowers to switch between rupee and foreign currencies depending on market conditions. 

The central bank had also said overseas loans must have a minimum average maturity period of three years, though manufacturers got flexibility to borrow for as little as one year but upto $50 million. The RBI had made it clear that costs of borrowing--including interest, fees, and charges--must remain aligned with market rates and cannot be paid out of borrowed proceeds themselves.

In line with the RBI's move to allow Indian banks to finance domestic acquisitions, the draft norms allows banks to extend capital raised via external commercial borrowing to fund mergers, acquisitions, amalgamations, provided they comply with their internal lending limits. 

The draft regulation also explicitly lists prohibited end-uses for borrowed funds. Overseas loans cannot be diverted into speculative or high-risk businesses like chit funds, Nidhi companies, real estate trading, or agricultural activities that aren't open to foreign investment, the RBI had said. Similarly, borrowers cannot channel these funds into buying securities or engaging in risky trades, it had said.

Even on-lending--passing on borrowed funds to other entities--is restricted to tightly controlled scenarios, such as lending within a regulated group structure or through entities already monitored by the RBI.

Other key provisions under the draft norms included broadening eligibility criteria for borrowers and lenders. It allows any person resident in India (other than an individual) who is established or registered under a central or state Act, to access overseas funding. Similarly, the category of recognised lenders includes any person resident outside India, as well as foreign branches or International Financial Services Centres-based branches of entities engaged in regulated lending activities of the RBI.   

It remains to be seen what changes the central bank will detail in the final norms, with external commercial borrowing becoming more and more important as a financial instrument for companies. As per latest data, Indian companies raised $2.40 billion through external commercial borrowings in November. Of the total, Indian companies raised $2.24 billion through the automatic route in November, with ONGC Videsh Ltd. being the largest borrower at $500 million. 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

PROPOSES TO ALLOW BANKS TO LEND TO REITS WITH CERTAIN SAFEGUARDS

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The Reserve Bank of India Friday has proposed to allow banks to lend to real estate investment trusts with safeguards, RBI Governor Sanjay Malhotra said after the Monetary Policy Committee's sixth bi-monthly meeting for 2025-26 (Apr-Mar). "To further promote financing to real estate sector, it is proposed to allow banks to lend to REITs with certain prudential safeguards," Malhotra said.

The RBI's Monetary Policy Committee left the policy repo rate unchanged at 5.25% in a unanimous decision. It also retained the 'neutral' policy stance. The rate-setting panel's decision was on expected lines. 

On Thursday, another apex regulator, the Securities and Exchange Board of India, proposed ease of doing business measures for REITs. SEBI also proposed to ease rules for REITs to invest in liquid mutual funds. 

Reported by Vaishali Tyagi

Edited by Avishek Dutta

PROPOSES EXEMPTING NBFCS WITH NO PUBLIC FUNDS FROM REGISTRATION

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The Reserve Bank of India on Friday proposed exempting non-banking financial companies having no public funds and customer interface, with asset size of less than INR 10 billion, from the requirement of registration. This will promote ease of doing business for such companies, the central bank's Governor Sanjay Malhotra said.

According to the RBI Act, 1934, NBFCs can start operations after obtaining a certificate of registration from the RBI. They also need to have net-owned funds of INR 100 million with effect from Oct. 1, 2022. However, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with the RBI.

The RBI also proposed removing the requirement for certain NBFCs to obtain prior approval to open more than 1,000 branches, Malhotra said. 

Reported by Sagar Sen 

Edited by Vandana Hingorani

FX RESERVES RISE TO RECORD HIGH OF $723.8 BLN AS OF JAN 30

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India's foreign exchange reserves rose to a record high of $723.8 billion in the week ended Jan. 30, Reserve Bank of India Governor Sanjay Malhotra said Friday. Reserves rose $14.4 billion on week, the biggest weekly jump since March. 

Reserves have risen for four consecutive weeks on the back of an increase in RBI's gold holdings and dollar-rupee swaps. Reserves could end this week even higher, with the RBI conducting a $10-billion buy-sell swap on Wednesday.

Malhotra said the reserves provide merchandise import cover of more than 11 months. "Overall, India's external sector remains resilient. We are confident of meeting our external financing requirements comfortably," the governor said while announcing the outcome of the three-day Monetary Policy Committee meeting Friday. The rate-setting panel left the repo rate unchanged at 5.25% as was widely expected. 

On the external financing side, India remains an attractive foreign direct investment destination for greenfield projects, Malhotra said. Gross foreign direct investment to India increased at a robust pace during Apr-Nov. Net FDI also increased as repatriations declined, despite a rise in outward FDI.

Robust services exports and healthy inward remittance receipts would keep India's current account deficit for the current year moderate and sustainable, Malhotra said. "Moreover, India's proactive efforts in pursuing bilateral and regional trade agreements with major trading partners are expected to boost international trade and investment, diversify trading partners and integrate India into global value chains."

The services sector should also continue to be resilient, with strengthening domestic demand. Early results from information technology firms suggest an improvement in business activity, the governor said. 

Reported by Shubham Rana

Edited by Avishek Dutta

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 sixth bi-monthly meeting for 2025-26 (Apr-Mar):

INTEREST RATES

The Reserve Bank of India's Monetary Policy Committee left the policy repo rate unchanged at 5.25% in a unanimous decision. 

POLICY STANCE

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

GROWTH

The Reserve Bank of India raised its GDP growth projection for the June quarter of 2026-27 (Apr-Mar) to 6.9% from 6.7%, and that of the September quarter to 7% from 6.8%. The central bank deferred the estimate for FY27 to April, after the base year for GDP is revised in February. 

INFLATION

The Reserve Bank of India raised its headline inflation forecast for the current quarter ending March by 30 basis points to 3.2% and also hiked the projection for 2025-26 (Apr-Mar) by 10 basis points to 2.1% with Jan-Mar at 3.2%. CPI inflation for Apr-Jun and Jul-Sept are projected at 4.0% and 4.2%, respectively. Excluding precious metals, the underlying inflation pressures remain muted. The risks are evenly balanced. According to Governor Sanjay Malhotra, "Despite the anticipated momentum being muted, unfavourable base effects stemming from large decline in prices observed in Jan-Mar of last year will lead to an uptick in inflation in the corresponding quarer this year."

LIQUIDITY

System liquidity, as measured by the net position under the Liquidity Adjustment Facility, stood at an average daily surplus of INR 0.7 trillion since the last MPC met in December. In response to the cumulative 125 bps cut in the policy repo rate, the weighted average lending rate of scheduled commercial banks declined by 105 bps for fresh rupee loans during Feb-Dec 2025. On the deposit side, the weighted average domestic term deposit rate on fresh deposits declined by 95 bps, while that on outstanding deposits softened by 41 bps over the same period.

Going ahead, the central bank will remain proactive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy and to facilitate monetary policy transmission. Liquidity management would be pre-emptive with sufficient allowance for unanticipated fluctuations in government balances, changes in currency in circulation, forex intervention, etc.

EXTERNAL SECTOR

Despite heightened uncertainty, global trade remained relatively robust. India's merchandise exports, supported by trade diversification efforts, grew by 1.9% on year in Oct-Dec whereas merchandise imports grew by 7.9% on year during the same period resulting in a widening of the trade deficit. Robust services exports and healthy inward remittance receipts would keep India's current account deficit for the current year moderate and sustainable.

On the external financing side, India remains an attractive foreign direct investment destination for greenfield projects. Gross foreign direct investment to India increased at a robust pace during Apr-Nov. Net FDI also increased as repatriations declined, despite a rise in outward FDI.

Robust services exports and healthy inward remittance receipts would keep India's current account deficit for the current year moderate and sustainable. Moreover, India's proactive efforts in pursuing bilateral and regional trade agreements with major trading partners are expected to boost international trade and investment, diversify trading partners and integrate India into global value chains.

FINANCIAL STABILITY

The system-level financial parameters related to capital adequacy, liquidity, asset quality and profitability of scheduled commercial banks continue to remain robust. Similarly, the system-level parameters of non-banking financial companies, too, are sound, with adequate capital position and improved asset quality. As per latest available data, credit from all sources grew at 13.8% on year, compared with 11.6% a year ago. Bank credit growth, too, recorded an uptick in recent months. This growth is supported by sustained lending to all sectors, particularly retail, services and micro, small, and medium enterprises. Large industries also recorded higher credit growth.

ADVANCING FINANCIAL INCLUSION AND FLOW OF CREDIT

In the financial inclusion space, the RBI has comprehensively reviewed the Lead Bank Scheme, Kisan Credit Card Scheme, and the Business Correspondent Model. The bank will issue draft revised guidelines with respect to them. A unified reporting portal will also be launched by the RBI for better management of Lead Bank Scheme data. The limit of INR 1 million for collateral-free loans to MSMEs is proposed to be increased to INR 2 million. To further promote financing to real estate sector, it is proposed to allow banks to lend to real estate investment trusts with certain prudential safeguards.

Several measures were announced for strengtheneing of urban co-operative banks. The measures include raising the financial limits on unsecured loans and loans to nominal members by urban co-operative banks. The RBI has also proposed to remove the tenor and moratorium related requirements on housing loans given by tier-III and tier-IV urban co-operative banks. To strengthen the managerial and technical capacity of the urban co-operative banks, the RBI shall launch Mission-SAKSHAM (Sahakari Bank Kshamta Nirman). The mission intends to train over 140,000 participants from urban co-operative banks.

PROMOTING EASE-OF-DOING BUSINESS FOR NBFCs

NBFCs having no public funds and customer interface, with asset size not exceeding INR 10 billion, are proposed to be exempted from the requirement of registration. Moreover, it is proposed to dispense with the requirement for certain NBFCs to obtain prior approval to open more than 1,000 branches.

DEEPENING FINANCIAL MARKETS

Coming to financial markets, the RBI had earlier issued revised draft regulations for external commercial borrowing. The regulations have been finalised and shall be notified shortly. The central bank propose to remove the limit of INR 2.5 trillion for investments under the Voluntary Retention Route. Investment through the VRR in each category of securities will be subject to the investment ceiling for the respective category under the General Route.

Furthermore, in pursuance of the announcement made in the Union Budget 2026-27, the RBI proposes to issue the regulatory framework for derivatives on corporate bond indices and total return swaps on corporate bonds. It is also proposed to issue draft revised guidelines for authorised dealer banks and stand-alone primary dealers allowing them more flexibility in undertaking foreign exchange transactions.

Compiled by Vaishali Tyagi

Filed by Akul Nishant Akhoury 

EXCERPTS ON INFLATION FROM MPC'S STATEMENT

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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 sixth bi-monthly meeting for 2025-26 (Apr-Mar):

Headline CPI inflation remained low at 0.7% in November and 1.3% in December. While food group continued to be in deflation, inflation within the fuel group remained moderate in November and December. Core inflation (CPI excluding food and fuel) too remained benign, despite the pick up in prices of precious metals. Excluding gold, core inflation remained stable at 2.6% in December.

Near-term outlook suggests that food supply prospects remain bright on the back of healthy kharif production, adequate buffer stocks of foodgrains and favourable rabi sowing. Core inflation, barring potential volatility induced by prices of precious metals, is expected to be range-bound. Geopolitical uncertainty coupled with volatility in energy prices and adverse weather events are other possible upside risks to inflation. In terms of headline inflation trajectory, unfavourable base effects stemming from large decline in prices observed in Jan-Mar of FY25 would lead to an uptick in year-on-year inflation in Jan-Mar of FY26, despite the anticipated momentum being muted. Considering all these factors, CPI inflation for FY26 is now projected at 2.1% with Q4 at 3.2%. CPI inflation for Apr-Jun and Jul-Sept are projected at 4.0% and 4.2%, respectively. Excluding precious metals, the underlying inflation pressures remain muted. The risks are evenly balanced. 

Compiled by J. Navya Sruthi

Filed by Avishek Dutta

EXCERPTS ON GROWTH FROM MPC'S STATEMENT

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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 sixth bi-monthly meeting for 2025-26 (Apr-Mar):

The Indian economy continues on a steadily improving trajectory, with real GDP poised to register significantly higher growth of 7.4% in 2025-26 (Apr-Mar), as compared to the previous year. Amidst global headwinds, private consumption and fixed investment supported growth. Net external demand, however, remained a drag, with imports outpacing exports. On the supply side, growth in real gross value added, on the back of a strong contribution from the services sector and revival in manufacturing activity, is estimated at 7.3% in 2025-26.

Going forward, economic activity is expected to hold up well in 2026-27 (Apr-Mar). Agricultural activity will be supported by healthy reservoir levels, robust rabi sowing, and improvement in crop vegetation conditions. Improving corporate sector performance and sustained momentum in informal sector should boost manufacturing activity. Construction sector growth is expected to remain firm. Services sector should continue to be resilient, with strengthening domestic demand. Early results from IT firms suggest an improvement in business activity.

On the demand side, the momentum in private consumption is expected to sustain in 2026-27. Rural demand remains steady, with improving agricultural activity and rural labour market conditions. Recovery in urban consumption should further strengthen with continued support from GST rationalisation and monetary easing. High capacity utilisation, accelerating bank credit, conducive financial conditions, and government's continued emphasis on infrastructure should give an impetus to investment activity. Moreover, several measures announced in the Union Budget should also be conducive for growth. The recently concluded India-EU free trade agreement and the prospective India-USA trade deal, along with several other trade agreements, will support exports over the medium-term. Services exports should remain resilient. The spillovers emanating from geopolitical tensions, volatility in international financial markets and shifting trade patterns pose risks to the outlook.

Taking all these factors into consideration, real GDP growth projections for Apr-Jun and Jul-Sept are revised upwards to 6.9% and 7.0%, respectively. The risks are evenly balanced. The projections for the full year are being to the April policy as the new GDP series will be released later in the month. 

Compiled by J. Navya Sruthi

Filed by Deepshikha Bhardwaj

End

US$1 = INR 90.66

Compiled by Vinodini Yadav and Shaheed Shaikh

Filed by Ashish Shirke

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