With inflation easing and the word “limited” dropped from the policy statement, is there now room for more than one rate cut? What triggers are you waiting for?
Inflation has declined by 1% since June, now standing at 2.6%, which does open up space to support growth. However, growth projections have been slightly revised downward due to trade-related factors like the 50% tariff, partially offset by GST. While monetary policy transmission has been broad-based, it’s still unfolding alongside other government measures. Given ongoing uncertainties and evolving developments, the MPC felt it was prudent to pause. The change in language reflects the shifting growth-inflation dynamics, not an immediate signal for rate cuts.
How resilient is India’s economic growth amid global challenges?
India’s growth has been quite resilient. Being a domestic demand-driven economy, the impact of external headwinds is limited. With proactive fiscal and monetary policies, and efforts to open new markets through trade deals like the one with the UK and ongoing negotiations with Oman and the EU, we are confident of maintaining a high growth trajectory while ensuring price stability.
With inflation easing, is there a possibility of shifting the monetary policy stance to accommodative?
Yes, there was a discussion on this. Two members, Professor Ram Singh and Dr Nagesh Kumar, expressed an accommodative stance as part of forward guidance. However, the majority maintained a neutral stance. This guidance is not linked to liquidity but serves to indicate the possible direction of interest rates going forward.
With the removal of system-level credit limits for large corporates, should we expect a revival in bank-led credit growth for them? And what’s the rationale behind the recent pro-banking measures?
The 2016 policy aimed to mitigate systemic risk by capping aggregate exposure to large corporates across the banking system. That cap has now been removed, but the individual bank-level large exposure framework remains unchanged. The rationale is that existing prudential tools are sufficient to manage risks. Moreover, corporate share in total banking exposure has declined over the past decade, reducing systemic concerns. As for the broader pro-banking measures, including support for funding acquisitions, they are part of an ongoing effort to ease regulatory burdens, enhance operational flexibility, and support the productive needs of the economy without compromising prudential safeguards.
With recent easing in regulations like allowing banks to fund acquisitions and increasing IPO financing limits, are we not inviting potential risks into the banking system? What is the broader goal behind these changes?
The measures are balanced, calibrated, and thoughtfully considered. Many of them, such as project finance and IPO financing, were already in place but hadn’t been revised for years. For instance, the loan limit against shares was last updated in 1998, and the recent revision reflects inflation-adjusted realities. The banking system’s risk-handling capacity has improved significantly, and adequate guardrails remain in place. These changes aim to enhance credit flow, improve competitiveness, and support economic growth without compromising financial stability.
Are the 22 regulatory measures announced today part of your broader vision to reduce the cost of regulation and improve ease of doing business for banks?
Yes. Circumstances, times, and requirements evolve; nothing should be frozen in time. That’s why we have committed to continuously reviewing regulations. In fact, under the FSDC, chaired by the Finance Minister, all financial sector regulators have agreed to reassess each regulation every five to seven years. These recent measures reflect that ongoing process and aim to refine and strengthen our regulatory ecosystem in line with current needs.
The policy mentions expanding rupee reference rates with major trading partners. Which currencies are being considered, and how will the benchmark rates be determined? Will this boost rupee trading internationally?
T. Rabi Sankar: The aim is to reduce reliance on cross-currency conversions like INR to USD and then USD to another currency, which benefits both the rupee and partner currencies. We are currently considering currencies such as the Indonesian rupiah and the UAE dirham, with more to follow. As active transactions are limited initially, the FBIL (Financial Benchmarks) will need to establish pricing references first, allowing the market to respond. The benchmark methodology will evolve as the market deepens, helping to gradually enhance the rupee’s international role.
What steps is the RBI taking to enhance digital payment security and address concerns around digital locking?
T. Rabi Sankar: The RBI is developing a Digital Payments Intelligence Platform through its innovation hub. This AI-powered system will analyse data from sources like telecoms, geography, and mule accounts to flag potentially risky transactions before they occur, allowing banks or customers to act proactively. While fraud rates in UPI and other platforms are already low, this initiative aims to reduce them further. As for digital locking, the issue is under examination, with careful consideration of customer rights, data privacy, and creditor needs. A balanced decision will be taken after evaluating all pros and cons.
Why has the RBI relaxed norms on forms of business for banks, and what macro-prudential tools might be used under the large exposure framework?
The relaxation on forms of business is now finalised, and it reflects our belief that banks should have the autonomy to make balanced, considered decisions based on their operational needs. We aim to avoid micro-management and trust boards to act responsibly. As for the large exposure framework, which remains in draft form, we may consider macro-prudential tools like caps on aggregate exposure across banks to mitigate concentration risk. Supervisory measures could also be deployed if necessary, depending on evolving circumstances.
Is the RBI shifting from a financial stability-first approach to a more pragmatic stance, especially in light of recent regulatory changes and adverse weather events?
Financial and price stability remain the foremost priorities for the RBI. These are critical not just for the central bank but for the country as a whole, as any episode of instability can set the economy back significantly. At the same time, we must ensure that the genuine growth needs of productive sectors are not impeded. Regarding adverse weather events, while they do impact inflation and growth, improved supply chain management and government measures have helped contain inflation more effectively in recent years. The RBI will continue to take necessary steps to safeguard the banking system against climate-related risks.
With the rupee depreciating and inflation projected at 4.5%, is the RBI comfortable with the current exchange rate, and is there scope for monetary easing?
We do not target any specific exchange rate or price band. Our focus is on managing undue volatility, and we will continue to do so. Regarding monetary policy, while inflation is projected at 4.5% in Q1, we also consider growth and broader macroeconomic factors. Based on this comprehensive assessment, we have decided to retain the policy repo rate at 5.5% and maintain a neutral stance.
Beyond infrastructure and renewables, are there signs of a revival in private sector capital expenditure among large corporates?
Yes, we saw a healthy pickup in Q1, and demand is strong across several sectors, like cement, auto, and others, which are showing encouraging signs of Capex activity. Overall, we remain confident that private Capex will continue to revive in the coming quarters.
Given the divergence between real and nominal GDP in Q1 and benign inflation forecasts, what could prevent the RBI from cutting rates in the near term?
Poonam Gupta: Monetary policy is inherently forward-looking. While Q1 numbers were surprisingly strong and inflation has been notably benign, projections suggest some softness in the second half of the year. These factors do open up some room, as noted in the MPC statement. However, rate decisions must be contextualised within a broader and fluid macroeconomic landscape, both domestic and global. Real and nominal GDP figures are important, but they are backwards-looking. The final decision on rates will consider a range of evolving indicators ahead of the December review.
Has the RBI or MPC mapped the sectoral impact of recent tariff changes on the Indian economy?
Yes, we have mapped the impact in detail. The primary sectors affected include gems and jewellery, shrimps, textiles, and, to a lesser extent, branded generic pharmaceuticals and footwear. These are the areas where tariff-related pressures are expected to be most visible.
You mentioned that yields have risen by 30–35 basis points since the June monetary policy. Given the headwinds in monetary policy transmission, especially through the bond channel, is the RBI concerned? Would you consider reintroducing OMOs or G-Sec purchases to ensure repo rate adjustments feed through to long-term rates?
Our primary tool for monetary policy transmission remains the policy repo rate, and we align our operational target, the weighted average call rate (WACR), to it. Last month, WACR stood at 5.46%. Transmission has been broad-based across money markets, bank credit, and corporate bonds. For instance, 5-year AAA corporate bond yields are down by 50 basis points from their peak.
Government securities have also seen movement, though transmission is a gradual process. The 10-year G-Sec yield has declined by 25–30 basis points due to monetary policy, though it had earlier dropped by 60 basis points. It’s important to note that the 10-year yield doesn’t move one-to-one with the repo rate.
We are confident that transmission will continue. Measures under consideration include adjustments to the tenor and structure of primary G-Sec auctions, both central and state. We believe these steps will support further transmission going forward.
Will RBI stick with headline inflation or shift to core? Will the band be narrowed? And when can we expect a decision, given implementation is due by March next year?
The FIT paper was part of a public consultation process to enable broad stakeholder participation. We have received a range of suggestions. Based on these, we will finalise our recommendations in line with the amended Act and submit them to the government. The decision whether to retain headline inflation, shift to core, or adjust the tolerance band will be shaped by this consultative input.
What is the rationale for issuing new UCB licenses? Is financial inclusion still the driving factor?
Whether to reopen licensing for UCBs and under what guardrails is a matter we are placing before stakeholders for feedback. Only after receiving and evaluating those responses will we take a considered view. Financial inclusion remains a priority, but governance and depositor protection are equally critical.
Does RBI factor public sentiment into its currency management decisions?
We do not target any specific level or band for the rupee. Public sentiment, like other market forces, gets reflected in the price. Our role is to manage undue or abnormal volatility and not to influence sentiment or push the currency in any direction. As mentioned earlier, we have sufficient reserves and see no reason for public emotion to be adversely affected.