RBI Monetary Policy 2025 HIGHLIGHTS: RBI cuts repo rate by 25 bps for the first time in 5 years; FY26 GDP seen at 6.70%, FY26 inflation likely at 4.2%

Sunil Sisodiya, Founder, Geetanjali Homestate, said, “The RBI’s decision to cut the repo rate by 25 basis points is a welcome move, particularly for the real estate sector. This rate cut, coupled with recent tax relief measures, is expected to boost homebuyer sentiment by making home loans more affordable. The timing is crucial, as it aligns with the government’s broader efforts to stimulate economic growth and revive consumer demand.

Lower interest rates have historically encouraged fence-sitters to take decisive steps toward property investments, driving demand across residential and commercial segments. With the inflation outlook stable and economic growth projected at 6.7%, we anticipate increased liquidity in the market, making real estate an even more attractive asset class.”

To conclude, Sanjay Malhotra maintained that considering the existing growth-inflation dynamics, the MPC, while continuing with the neutral stance, felt that a less restrictive monetary policy is more appropriate at the current juncture. “The MPC will take a decision in each of its future meetings based on a fresh assessment of the macroeconomic outlook. We are committed to conduct monetary policy and take such measures, as appropriate, which are timely, carefully calibrated and clearly communicated, to facilitate conducive macroeconomic conditions that reinforce price stability, sustained economic growth and financial stability,” he concluded.

RBI Governor Sanjay Malhotra said that in view of the various developments in financial markets and market infrastructure over the past few years, the central bank shall set up a working group with representation from various stakeholders to undertake a comprehensive review of trading and settlement timing of markets regulated by the Reserve Bank. The Group shall submit its report by 30th April of this year, he added.

The Reserve Bank, Sanjay Malhotra said, shall implement the ‘bank.in’ exclusive Internet Domain for Indian banks. “Registration of this domain name will commence from April this year. This will help avoid banking frauds. This will be followed by the ‘fin.in’ domain for the financial sector,” he said.

RBI Governor Sanjay Malhotra said that the rapid digitalisation of financial services has brought convenience and efficiency but has also increased exposure to cyber threats and digital risks. “The surge in digital frauds is a matter of concern, warranting action by all stakeholders. The Reserve Bank has been taking various measures to enhance digital security in the banking and payments system. Introduction of Additional Factor of Authentication (AFA) for domestic digital payments is one such measure,” he said.

The system-level financial parameters for Scheduled Commercial Banks (SCBs) continue to be healthy. The Credit Deposit Ratio (CD ratio) for the banking system at the end of January 2025 was at 80.8 per cent, broadly similar to that on 30th September, 2024, the RBI governor said. “Bank liquidity buffers are sufficient. Though the net interest margin (NIM) moderated, return on assets (RoA) and return on equity (RoE) are robust. The system-level parameters for NBFCs too are healthy,” he said.

RBI Governor Sanjay Malhotra said, “We urge the banks to actively trade among themselves in the uncollateratised call money market to make it deeper and vibrant for better signal extraction from the weighted average call money rate (WACR).”

RBI Governor Sanjay Malhotra said, “I would like to mention here that the Reserve Bank’s exchange rate policy has remained consistent over the years. Our stated objective is to maintain orderliness and stability, without compromising market efficiency.” Accordingly, RBI’s interventions in the forex market focused on smoothening excessive and disruptive volatility rather than targeting any specific exchange rate level or band. The exchange rate of the Indian Rupee is determined by market forces, he added.

India’s current account deficit (CAD) moderated from 1.3 per cent of GDP in Q2 of last year to 1.2 per cent in Q2 of this year, the RBI governor said. “According to the World Bank, India, with an estimated inflow of 129.1 billion US dollars, continues to remain the largest recipient of remittances globally in 2024. The CAD for this year is expected to remain well within the sustainable level. As on 31st January this year, India’s foreign exchange reserves stood at 630.6 billion US dollars, providing an import cover of over 10 months. Overall, India’s external sector remains resilient as key indicators stay robust,” Sanjay Malhotra said.

On the demand side, RBI Governor Sanjay Malhotra said that rural demand continues to be on an uptrend, while urban consumption remains subdued with high frequency indicators providing mixed signals. “Going forward, improving employment conditions, tax relief in the Union Budget, and moderating inflation, together with healthy agricultural activity bode well for household consumption. Government consumption expenditure is expected to remain modest. Higher capacity utilisation levels, robust business expectations and government policy support augur well for growth in fixed investment. Continued buoyancy in services exports will support growth.”

RBI Governor Sanjay Malhotra said, “Going forward, economic activity is expected to improve in the coming year. Agricultural activity remains upbeat on the back of healthy reservoir levels and bright rabi prospects. Manufacturing activity is expected to recover gradually in the second half of this year and beyond. Early corporate results for Q3 indicate a mild recovery in the manufacturing sector. Mining and electricity are rebounding from monsoon related disruptions in Q2. Business expectations remain upbeat, as evidenced from the PMI manufacturing future output index. Services sector activity continues to be resilient. PMI services, however, declined from its recent peak.”

RBI Governor Sanjay Malhotra said, “The Indian economy, though continuing to remain strong and resilient, also did not remain immune to these global headwinds, with the Indian Rupee coming under depreciation pressure in the recent months. At the Reserve Bank, we have been employing all tools at our disposal to face the multi-pronged challenges.”

Besides declining inflation, RBI Governor Sanjay Malhotra said, “excessive volatility in global financial markets and continued uncertainties about global trade policies coupled with adverse weather events pose risks to the growth and inflation outlook. This calls for the MPC to remain watchful. Accordingly, the MPC unanimously voted to continue with a neutral stance. This will provide MPC the flexibility to respond to the evolving macroeconomic environment.”

RBI Governor Sanjay Malhotra said that the MPC noted that inflation has declined. Supported by a favourable outlook on food and continuing transmission of past monetary policy actions, it is expected to further moderate in 2025-26, gradually aligning with the target. He further said, “The MPC also noted that though growth is expected to recover from the low of Q2:2024-25, it is much below that of last year. These growth-inflation dynamics open up policy space for the MPC to support growth, while remaining focussed on aligning inflation with the target. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.25 per cent.”

While delivering his speech after the three-day meeting, RBI Governor Sanjay Malhotra said, “Headline inflation softened sequentially in November-December 2024 from its recent peak of 6.2 per cent in October. The moderation in food inflation, as vegetable price inflation came off from its October high, drove the decline in headline inflation. Core inflation remained subdued across goods and services components and the fuel group continued to be in deflation.”

The key equity indices traded lower after the central bank cut the key interest rates. The Nifty 50 fell 58 points or 0.25% to trade at 23,545 while the S&P BSE complied Sensex dropped 158 points or 0.20% at 77,899.56.

RBI Governor Sanjay Malhotra gave following projections for inflation:

FY25: 4.8%

Q4FY25: 4.4%

FY26: 4.2%

Q1FY26: 4.5%

Q2FY26: 4%

Q3FY26: 3.8%

Q4FY26: 4.2%

RBI Governor Sanjay Malhotra gave following projections for GDP growth for the next financial year:

FY25: 4.8%

Q1FY26: 6.7%

Q2FY26: 6.7%

Q3FY26: 7%

Q4FY26: 6.5%

RBI Governor Sanjay Malhotra said, “The global economy is growing below the historical average even though high frequency indicators suggest resilience amidst continued expansion in world trade. The world economic landscape remains challenging with slower pace of disinflation, lingering geopolitical tensions and policy uncertainties. The strong dollar, inter alia, continues to strain emerging market currencies and enhance volatility in financial markets.”

He further maintained that the Indian economy was not immune to global uncertainties.

RBI Governor Sanjay Malhotra, said, “Inflation has declined supported by favourable outlook on food. It is expected to moderate further, gradually aligning with the target.”

RBI Governor Sanjay Malhotra-led MPC projected inflation for FY26 at 4.2 per cent

MSF and SDF rates changed to 6.50% and 6% respectively.

The RBI MPC decided to continue with the ‘neutral’ monetary policy stance and remain unambiguously focussed on a durable alignment of inflation with the target, while supporting growth. RBI Governor Sanjay Malhotrasaid that a neutral stance will provide RBI flexibility to respond to environment.

After the three-day meeting of the monetary policy committee, RBI Governor Sanjay Malhotra said that the MPC voted unanimously and decided to reduce the repo rate by 25 bps from 6.50 per cent to 6.25 per cent.

While delivering his speech after the three-day MPC meeting, RBI Governor Sanjay Malhotra said that the CPI has aligned with the target barring a few incidents.

RBI Governor Sanjay Malhotra is all set to start his speech to announce the decision of the RBI MPC after the three-day deliberation.

In its previous meeting, the Reserve Bank of India’s (RBI) Monetary Policy Committee had announced a reduction in the cash reserve ratio (CRR) to 4 per cent from 4.5 per cent, while keeping the key interest rate unchanged at 6.50 per cent.

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While delivering her Budget speech on February 1, Finance Minister Nirmala Sitharaman signalled that the government will continue on the path of fiscal consolidation with fiscal deficit target for FY26 pegged at 4.4 per cent of GDP as against 4.8 per cent in FY25.

Since the last monetary policy meeting of RBI held in December 2024, a lot has changed, with the most notable being the rising volatility visible in major asset classes, especially for INR. According to Bank of Baroda, balancing and counterbalancing all macro and geopolitical factors, there remains space for a 25 bps rate cut by RBI. The cumulative cut in the entire cycle could be ~50-75 bps, it added while maintaining “beginning of a shallower rate cycle by RBI seems appropriate”.

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The popular consensus indicates chances of 25 bps rate cut at the RBI Policy today. Given the slowing GDP numbers, the inflation outlook and the Budget push for speeding up consumption, the economists believe that the RBI may announce a cut in key rates by 25 bps.