Global Economic Context

 The 55th meeting of the Monetary Policy Committee (MPC) occurred

amidst a promising start to the monsoon season in India.
 The global economic backdrop remains fragile and fluid.
 Uncertainty around the global economic outlook has somewhat
decreased, but it is still high due to weakened sentiments and
lower global growth prospects.
 Global growth and trade projections have been revised downwards
by multilateral agencies.
 The final stages of disinflation are proving challenging.
 Monetary authorities are adopting a cautious and carefully
calibrated policy approach.
 Growing economic and financial fragmentation is reshaping the
global economy.
 Elevated debt levels and the increasing influence of technologies
like AI are raising financial stability concerns.
 Emerging market economies face challenges in stabilizing their
economies against global spillovers due to heightened volatility in
capital flows, exchange rates, and constrained policy space.

🇮🇳 India's Economic Strengths

 The Indian economy is characterized by strength, stability, and
opportunity.

 Strength: Strong balance sheets in the corporate, banking,

household, government, and external sectors.

 Stability: Price, financial, and political stability providing economic

certainty.

 Opportunity:

 Demography: Large and growing working-age population

that is becoming more literate, educated, and skilled, along
with increasing urbanization.
 Digitalization: Advanced public digital infrastructure.
 Domestic Demand: High domestic demand, which is crucial
given trends of deglobalization.

 These fundamentals provide the core strength to cushion the Indian

economy against global spillovers and drive faster growth. India's
 6.5% growth rate is the highest among major economies in the last
decade.

Monetary Policy Committee (MPC) Decisions

 The MPC met on June 4th, 5th, and 6th to decide on the policy repo
rate.

 The MPC decided to reduce the policy repo rate under the liquidity
adjustment facility by 50 basis points to 5.5%, effective
immediately.

 Consequently:
 The standing deposit facility (SDF) rate is adjusted
to 5.25%.
 The marginal standing facility (MSF) rate and the bank
rate are adjusted to 5.75%.

Rationale for Decisions

 Inflation has significantly softened over the last six months,
dropping from above the tolerance band in October 2024 to below
the target, with the latest numbers at 3.2%.
 The near-term and medium-term outlook indicates a durable
alignment of headline inflation with the target of 4%. The projection
for this year is now revised downwards from 4% to 3.7%.
 Core inflation is expected to remain benign due to easing
international commodity prices, aligning with anticipated global
growth slowdown.
 Growth remains lower than desired amidst a challenging global
environment.
 The MPC felt it necessary to stimulate domestic private consumption
and investment through policy levers to boost growth momentum.
 The changed growth-inflation dynamics necessitate continued policy
easing and frontloading rate cuts to support growth.
 After reducing the policy repo rate by 100 basis points since
February 2025, the MPC has limited space to further support growth.
 The MPC decided to change the stance from accommodative to
neutral.
 The MPC will carefully assess incoming data to chart the future
course of monetary policy and balance growth and inflation.
  Continuous monitoring and assessment of the evolving
macroeconomic outlook are necessary due to the fast-changing
global economic situation.
 The MPC seeks to stimulate the economy by making it cheaper for
banks to borrow money, thus incentivizing them to loan more
money to consumers.

Assessment of Growth
 Provisional estimates from the National Statistical Office place
India's real GDP growth in 2024-25 at 6.5%.
 Domestic economic activity remains resilient.
 Agriculture is strong with good harvests in both karif and rubby
cropping seasons.
 Supply of major food crops is comfortable, and reservoir levels are
healthy.
 Wheat procurement is the highest in the last four years.
 Industrial activity is gradually gaining momentum, though recovery
is uneven.
 The services sector is expected to maintain momentum, with PMI
services at 58.8 in May 2025, indicating robust expansion.
 Private consumption, which constitutes about 56% of the GDP,
remains healthy with a gradual rise in discretionary spending.
 Rural demand is steady, and urban demand is improving.
 Investment activity is reviving, as reflected by high-frequency
indicators.
 Merchandise exports recorded strong growth in April 2025, after a
lackluster performance.
 Non-oil non-gold imports posted double-digit growth, reflecting
strong domestic demand.
 Services exports continue on a strong growth trajectory.
 The outlook for the agriculture sector and rural demand is expected
to benefit from an above-normal southwest monsoon.
 Sustained buoyancy in services activity should nurture revival in
urban consumption.
 Healthy balance sheets of banks and corporates, government's
continued thrust on capex, elevated capacity utilization, improving
business optimism, and easing financial conditions should further
revive investment activity.
 Trade policy uncertainty weighs on merchandise exports prospects.
  Free Trade Agreement with the United Kingdom and progress in
negotiations with other countries should boost trade.
 Protracted geopolitical tensions, global trade, and weather-related
uncertainties pose downside risks to growth.
 Real GDP growth rate for 2025-26 is projected at 6.5%, with Q1 at
6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%. The risks are evenly
balanced.

Assessment of Inflation
 CPI headline inflation continued its decline in March and April,
moderating to a nearly six-year low of 3.2% in April 2025.
 This was mainly driven by food inflation, which recorded the sixth
consecutive monthly decline.
 Fuel group, which had experienced deflationary conditions, saw a
reversal with positive inflation in March and April, partly due to a
hike in LPG prices.
 Core inflation remained largely steady and contained during March
and April, despite an increase in gold prices.
 The outlook for inflation indicates benign prices across major
constituents.
 Record wheat production and higher production of key pulses in the
rubby crop season should ensure adequate supply of key food
items.
 The expected above-normal monsoon augurs well for karif crop
prospects.
 Inflation expectations are showing a moderating trend, particularly
for rural households.
 Most projections indicate continued moderation in prices of key
commodities, including crude oil.
 Weather-related uncertainties and tariff-related concerns could
impact global commodity prices.

Inflation Projections
The CPI inflation for the financial year 25-26 is projected at 3.7%, a
downward revision from the earlier forecast of 4%.

 Q1: 2.9%
 Q2: 3.4%
 Q3: 3.9%
 Q4: 4.4%
The risks are evenly balanced.

External Sector
The current account deficit for the last year, 24-25, is expected to
remain low due to moderation in trade deficit in Q4 24-25, strong services
exports, and remittance receipts.

Despite geopolitical uncertainties and trade tensions, India's merchandise

trade remained robust in April 2025, with imports growing faster than
exports, widening the trade deficit.

The current account deficit for this year, 25-26, is expected to remain well
within sustainable levels, with net services and remittance receipts
counterbalancing the rise in trade deficit.

Foreign Investment

In 24-25, foreign portfolio investment (FPI) to India dropped sharply

to $1.7 billion as foreign portfolio investors booked profits in equities. Net
foreign direct investment (FDI) also moderated.

Net FDI matters due to its impact on foreign exchange reserves. It

considers both inflows and outflows.

Gross FDI actually increased by 14% to $81 billion US last year,

indicating India remains an attractive investment destination.

 Moderation in net inflows: Primarily due to a rise in repatriation.

 Higher gross FDI: Sign of large industrial and other companies
investing.

External commercial borrowings and non-resident deposits witnessed

higher net inflows compared to the previous year.

As of May 30, 2025, India's foreign exchange reserves stood at $691.5

billion US, sufficient to fund over 11 months of goods imports and about
96% of external debt outstanding.

Overall, India's external sector remains resilient, with key external sector
vulnerability indicators continuing to improve.

Liquidity and Financial Market Conditions

The RBI has injected a total of ₹9.5 lakh crore of durable liquidity into the
banking system since January through various means like OMOS, CRR rate
cuts, and buy/sell swaps.
As a result, liquidity conditions transitioned to a surplus at the end of
March. This is evident from:

 The tepid response to daily VR auctions, with a bid coverage ratio of

only 0.26 recently.
 High STF balances, averaging about ₹2 lakh crore in April and May.

The weighted average call rate, the operating target for monetary policy,
traded at the lower end of the LF corridor since the last policy.

The comfortable liquidity surplus in the banking system has further

reinforced transmission of policy repo rate cuts to short-term rates.
Perceptible transmission to the credit market segment is still awaited, but
there are incipient signs.

Cash Reserve Ratio (CRR) Reduction

The Reserve Bank has decided to reduce the cash reserve ratio
(CRR) by 100 basis points, from 4% to 3% of net demand and time
liabilities.

This will be done in four equal tranches of 25 basis points each, effective
from the fortnights beginning:

 September 6, 2025
 October 4, 2025
 November 1, 2025
 November 29, 2025

The CRR cut would release primary liquidity of about ₹2.5 lakh crore to
the banking system by the end of November 2025. It will also reduce the
cost of funding for banks, helping accelerate monetary policy transmission
to the credit market.

The RBI will continue to monitor the evolving liquidity and financial market
conditions and proactively take further measures as necessary for liquidity
and monetary policy transmission.

Financial Stability
The system-level financial parameters of the scheduled commercial banks
continue to be robust. Asset quality parameters, liquidity buffers, and
profitability parameters have shown further improvement.

The credit deposit ratio for the banking system at the end of December
2024 was at 81.84%, broadly similar to the previous year.
Similarly, the system-level parameters of NBFCs are sound, with
comfortable capital positions and improved G&NPA ratios.

Stress witnessed earlier in retail segments like unsecured personal loans

and credit card receivables portfolio has abated, while the stress in the
microfinance segment is still persisting. Banks and NBFCs active in these
segments are recalibrating their business models, strengthening their
credit underwriting practices, and stepping up their collection and
recovery efforts.

Economic Outlook
The Indian economy is progressing well and is broadly on expected lines,
despite global uncertainty. Strong macroeconomic fundamentals and a
benign inflation outlook provide space to monetary policy to support
growth while remaining consistent with the goal of price stability.

Today's monetary policy actions should be seen as a step towards

propelling growth to a higher aspirational trajectory.

Price Stability and Growth

There is no tussle between price stability and growth in the medium and
long term. Price stability preserves purchasing power, imparts certainty to
households and businesses, and ensures congenial interest rate and
financial conditions, fostering consumption, investment, and overall
activity and growth. It is also crucial for equitable growth and shared
prosperity.

While price stability is a necessary condition, it is not sufficient to ensure

growth. A supportive policy environment is vital, especially during periods
of high uncertainties.

The Reserve Bank remains focused on price stability and is putting in

place complementary monetary as well as credit policies and regulations
that support growth and prosperity.

Policy Surprises
The governor cited the softening inflation data as a key reason for a 50
basis point rate cut. There was also another surprise.

The stance has been changed to neutral from accommodative.

The SDF rate (standing deposit facility rate) is at 5.25% after the rate cut.
The MSF...## RBI Monetary Policy Review
Current Repo Rate and CPI Forecast

The current repo rate stands at 5.75%.

The governor has revised the CPI (Consumer Price Index)

forecast lower for FY26 to 3.7%.

Rate Cut Strategy

The MPC (Monetary Policy Committee) is frontloading the rate cuts,

which means they have limited policy space to boost growth going
forward.

Total rate cut this calendar year has been 100 basis points thus far.

It is still uncertain what the terminal rate will be. Possible values are:

 5.5%
 5.25%

GDP Forecast

The GDP forecast is unchanged at 6.5%.

The quarterly breakup is as follows:

Quarter GDP Forecast

Q1 6.5%

Q2 6.7%

Q3 6.6%
Quarter GDP Forecast

Q4 6.3%

Cash Reserve Ratio (CRR) Cut

The RBI (Reserve Bank of India) has cut the cash reserve ratio
(CRR) by 100 basis points, which was unexpected.

The cash reserve ratio (CRR) is the percentage of a bank's total deposits
that it is required to keep with the Reserve Bank of India (RBI) as a
reserve in the form of cash.

This CRR cut will happen in four tranches of 25 basis points each:

 September 6th
 October 4th
 November 1st
 November 29th

Market Reaction

There have been sharp spikes in the market as the speech progressed.

The Nifty Bank Index is now above 56,100 and hit a fresh high of 56,183
today.

The Nifty is up 100 points.

The market is focusing more on the liquidity measures taken by the RBI
and the quantum of rate cuts.

The midcap index is also up by 0.5%.

The Bank Nifty is up 0.7%.

Movers on the Index

Movers on the index are primarily from the financial space:

  Bajaj Finance
 Axis Bank
 SBI
 IndusInd Bank

Stocks like SBI are gaining in excess of 1%.

Sector Performance

The auto sector is up in excess of 1%, bene Global Economic Context

 The 55th meeting of the Monetary Policy Committee (MPC) occurred

amidst a promising start to the monsoon season in India.

 The global economic backdrop remains fragile and fluid.

 Uncertainty around the global economic outlook has somewhat

decreased, but it is still high due to weakened sentiments and
lower global growth prospects.

 Global growth and trade projections have been revised downwards

by multilateral agencies.

 The final stages of disinflation are proving challenging.

 Monetary authorities are adopting a cautious and carefully

calibrated policy approach.

 Growing economic and financial fragmentation is reshaping the

global economy.

 Elevated debt levels and the increasing influence of technologies

like AI are raising financial stability concerns.

 Emerging market economies face challenges in stabilizing their

economies against global spillovers due to heightened volatility in
capital flows, exchange rates, and constrained policy space.

India's Economic Strengths

 The Indian economy is characterized by strength, stability, and

opportunity.

 Strength: Strong balance sheets in the corporate, banking,

household, government, and external sectors.
  Stability: Price, financial, and political stability providing economic
certainty.

 Opportunity:

 Demography: Large and growing working-age population

that is becoming more literate, educated, and skilled, along
with increasing urbanization.

 Digitalization: Advanced public digital infrastructure.

 Domestic Demand: High domestic demand, which is crucial

given trends of deglobalization.

 These fundamentals provide the core strength to cushion the Indian

economy against global spillovers and drive faster growth. India's
6.5% growth rate is the highest among major economies in the last
decade.

Monetary Policy Committee (MPC) Decisions

 The MPC met on June 4th, 5th, and 6th to decide on the policy repo
rate.

 The MPC decided to reduce the policy repo rate under the liquidity
adjustment facility by 50 basis points to 5.5%, effective
immediately.

 Consequently:

 The standing deposit facility (SDF) rate is adjusted

to 5.25%.

 The marginal standing facility (MSF) rate and the bank

rate are adjusted to 5.75%.

Rationale for Decisions

 Inflation has significantly softened over the last six months,

dropping from above the tolerance band in October 2024 to below
the target, with the latest numbers at 3.2%.

 The near-term and medium-term outlook indicates a durable

alignment of headline inflation with the target of 4%. The projection
for this year is now revised downwards from 4% to 3.7%.
  Core inflation is expected to remain benign due to easing
international commodity prices, aligning with anticipated global
growth slowdown.

 Growth remains lower than desired amidst a challenging global

environment.

 The MPC felt it necessary to stimulate domestic private consumption

and investment through policy levers to boost growth momentum.

 The changed growth-inflation dynamics necessitate continued policy

easing and frontloading rate cuts to support growth.

 After reducing the policy repo rate by 100 basis points since
February 2025, the MPC has limited space to further support growth.

 The MPC decided to change the stance from accommodative to

neutral.

 The MPC will carefully assess incoming data to chart the future
course of monetary policy and balance growth and inflation.

 Continuous monitoring and assessment of the evolving

macroeconomic outlook are necessary due to the fast-changing
global economic situation.

 The MPC seeks to stimulate the economy by making it cheaper for

banks to borrow money, thus incentivizing them to loan more
money to consumers.

Assessment of Growth

 Provisional estimates from the National Statistical Office place

India's real GDP growth in 2024-25 at 6.5%.

 Domestic economic activity remains resilient.

 Agriculture is strong with good harvests in both karif and rubby

cropping seasons.

 Supply of major food crops is comfortable, and reservoir levels are

healthy.

 Wheat procurement is the highest in the last four years.

 Industrial activity is gradually gaining momentum, though recovery

is uneven.
  The services sector is expected to maintain momentum, with PMI
services at 58.8 in May 2025, indicating robust expansion.

 Private consumption, which constitutes about 56% of the GDP,

remains healthy with a gradual rise in discretionary spending.

 Rural demand is steady, and urban demand is improving.

 Investment activity is reviving, as reflected by high-frequency

indicators.

 Merchandise exports recorded strong growth in April 2025, after a

lackluster performance.

 Non-oil non-gold imports posted double-digit growth, reflecting

strong domestic demand.

 Services exports continue on a strong growth trajectory.

 The outlook for the agriculture sector and rural demand is expected
to benefit from an above-normal southwest monsoon.

 Sustained buoyancy in services activity should nurture revival in

urban consumption.

 Healthy balance sheets of banks and corporates, government's

continued thrust on capex, elevated capacity utilization, improving
business optimism, and easing financial conditions should further
revive investment activity.

 Trade policy uncertainty weighs on merchandise exports prospects.

 Free Trade Agreement with the United Kingdom and progress in

negotiations with other countries should boost trade.

 Protracted geopolitical tensions, global trade, and weather-related

uncertainties pose downside risks to growth.

 Real GDP growth rate for 2025-26 is projected at 6.5%, with Q1 at

6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%. The risks are evenly
balanced.

Assessment of Inflation

 CPI headline inflation continued its decline in March and April,

moderating to a nearly six-year low of 3.2% in April 2025.
  This was mainly driven by food inflation, which recorded the sixth
consecutive monthly decline.

 Fuel group, which had experienced deflationary conditions, saw a

reversal with positive inflation in March and April, partly due to a
hike in LPG prices.

 Core inflation remained largely steady and contained during March

and April, despite an increase in gold prices.

 The outlook for inflation indicates benign prices across major

constituents.

 Record wheat production and higher production of key pulses in the

rubby crop season should ensure adequate supply of key food
items.

 The expected above-normal monsoon augurs well for karif crop

prospects.

 Inflation expectations are showing a moderating trend, particularly

for rural households.

 Most projections indicate continued moderation in prices of key

commodities, including crude oil.

 Weather-related uncertainties and tariff-related concerns could

impact global commodity prices.

Inflation Projections

The CPI inflation for the financial year 25-26 is projected at 3.7%, a
downward revision from the earlier forecast of 4%.

 Q1: 2.9%

 Q2: 3.4%

 Q3: 3.9%

 Q4: 4.4%

The risks are evenly balanced.

External Sector
The current account deficit for the last year, 24-25, is expected to
remain low due to moderation in trade deficit in Q4 24-25, strong services
exports, and remittance receipts.

Despite geopolitical uncertainties and trade tensions, India's merchandise

trade remained robust in April 2025, with imports growing faster than
exports, widening the trade deficit.

The current account deficit for this year, 25-26, is expected to remain well
within sustainable levels, with net services and remittance receipts
counterbalancing the rise in trade deficit.

Foreign Investment

In 24-25, foreign portfolio investment (FPI) to India dropped sharply

to $1.7 billion as foreign portfolio investors booked profits in equities. Net
foreign direct investment (FDI) also moderated.

Net FDI matters due to its impact on foreign exchange reserves. It

considers both inflows and outflows.

Gross FDI actually increased by 14% to $81 billion US last year,

indicating India remains an attractive investment destination.

 Moderation in net inflows: Primarily due to a rise in repatriation.

 Higher gross FDI: Sign of large industrial and other companies

investing.

External commercial borrowings and non-resident deposits witnessed

higher net inflows compared to the previous year.

As of May 30, 2025, India's foreign exchange reserves stood at $691.5

billion US, sufficient to fund over 11 months of goods imports and about
96% of external debt outstanding.

Overall, India's external sector remains resilient, with key external sector
vulnerability indicators continuing to improve.

Liquidity and Financial Market Conditions

The RBI has injected a total of ₹9.5 lakh crore of durable liquidity into the
banking system since January through various means like OMOS, CRR rate
cuts, and buy/sell swaps.

As a result, liquidity conditions transitioned to a surplus at the end of

March. This is evident from:
  The tepid response to daily VR auctions, with a bid coverage ratio of
only 0.26 recently.

 High STF balances, averaging about ₹2 lakh crore in April and May.

The weighted average call rate, the operating target for monetary policy,
traded at the lower end of the LF corridor since the last policy.

The comfortable liquidity surplus in the banking system has further

reinforced transmission of policy repo rate cuts to short-term rates.
Perceptible transmission to the credit market segment is still awaited, but
there are incipient signs.

Cash Reserve Ratio (CRR) Reduction

The Reserve Bank has decided to reduce the cash reserve ratio
(CRR) by 100 basis points, from 4% to 3% of net demand and time
liabilities.

This will be done in four equal tranches of 25 basis points each, effective
from the fortnights beginning:

 September 6, 2025

 October 4, 2025

 November 1, 2025

 November 29, 2025

The CRR cut would release primary liquidity of about ₹2.5 lakh crore to
the banking system by the end of November 2025. It will also reduce the
cost of funding for banks, helping accelerate monetary policy transmission
to the credit market.

The RBI will continue to monitor the evolving liquidity and financial market
conditions and proactively take further measures as necessary for liquidity
and monetary policy transmission.

Financial Stability

The system-level financial parameters of the scheduled commercial banks

continue to be robust. Asset quality parameters, liquidity buffers, and
profitability parameters have shown further improvement.

The credit deposit ratio for the banking system at the end of December
2024 was at 81.84%, broadly similar to the previous year.
Similarly, the system-level parameters of NBFCs are sound, with
comfortable capital positions and improved G&NPA ratios.

Stress witnessed earlier in retail segments like unsecured personal loans

and credit card receivables portfolio has abated, while the stress in the
microfinance segment is still persisting. Banks and NBFCs active in these
segments are recalibrating their business models, strengthening their
credit underwriting practices, and stepping up their collection and
recovery efforts.

Economic Outlook

The Indian economy is progressing well and is broadly on expected lines,

despite global uncertainty. Strong macroeconomic fundamentals and a
benign inflation outlook provide space to monetary policy to support
growth while remaining consistent with the goal of price stability.

Today's monetary policy actions should be seen as a step towards

propelling growth to a higher aspirational trajectory.

Price Stability and Growth

There is no tussle between price stability and growth in the medium and
long term. Price stability preserves purchasing power, imparts certainty to
households and businesses, and ensures congenial interest rate and
financial conditions, fostering consumption, investment, and overall
activity and growth. It is also crucial for equitable growth and shared
prosperity.

While price stability is a necessary condition, it is not sufficient to ensure

growth. A supportive policy environment is vital, especially during periods
of high uncertainties.

The Reserve Bank remains focused on price stability and is putting in

place complementary monetary as well as credit policies and regulations
that support growth and prosperity.

Policy Surprises

The governor cited the softening inflation data as a key reason for a 50
basis point rate cut. There was also another surprise.

The stance has been changed to neutral from accommodative.

The SDF rate (standing deposit facility rate) is at 5.25% after the rate cut.
The MSF...## RBI Monetary Policy Review

Current Repo Rate and CPI Forecast

The current repo rate stands at 5.75%.

The governor has revised the CPI (Consumer Price Index)

forecast lower for FY26 to 3.7%.

Rate Cut Strategy

The MPC (Monetary Policy Committee) is frontloading the rate cuts,

which means they have limited policy space to boost growth going
forward.

Total rate cut this calendar year has been 100 basis points thus far.

It is still uncertain what the terminal rate will be. Possible values are:

 5.5%

 5.25%

GDP Forecast

The GDP forecast is unchanged at 6.5%.

The quarterly breakup is as follows:

Quarter GDP Forecast

Q1 6.5%

Q2 6.7%

Q3 6.6%

Q4 6.3%

Cash Reserve Ratio (CRR) Cut

The RBI (Reserve Bank of India) has cut the cash reserve ratio
(CRR) by 100 basis points, which was unexpected.

The cash reserve ratio (CRR) is the percentage of a bank's total deposits
that it is required to keep with the Reserve Bank of India (RBI) as a
reserve in the form of cash.
This CRR cut will happen in four tranches of 25 basis points each:

 September 6th

 October 4th

 November 1st

 November 29th

Market Reaction

There have been sharp spikes in the market as the speech progressed.

The Nifty Bank Index is now above 56,100 and hit a fresh high of 56,183
today.

The Nifty is up 100 points.

The market is focusing more on the liquidity measures taken by the RBI
and the quantum of rate cuts.

The midcap index is also up by 0.5%.

The Bank Nifty is up 0.7%.

Movers on the Index

Movers on the index are primarily from the financial space:

 Bajaj Finance

 Axis Bank

 SBI

 IndusInd Bank

Stocks like SBI are gaining in excess of 1%.

Sector Performance

The auto sector is up in excess of 1%, benefiting from the rate cuts.

The realty index is up 2%, reflecting cheaper home loans.

fiting from the rate cuts.

The realty index is up 2%, reflecting cheaper home loans.