Monetary Policy Statement by Shri Sanjay Malhotra, RBI Governor- April 09, 2025

Summary

In the 54th meeting of the Monetary Policy Committee, the Reserve Bank of India discussed global economic challenges, trade frictions, and their impact on inflation and growth. The RBI reduced the policy repo rate by 25 basis points to 6%, with an accommodative stance to support growth amidst global uncertainties. The meeting highlighted India’s resilient economic performance, stable inflation outlook, and robust financial conditions. Despite challenges from global trade disruptions, the Indian economy is projected to grow at 6.5% in 2025-26, with inflation expected to remain around 4%. The RBI also introduced measures to enhance financial regulation and liquidity management.

Takeaways

• 😀 The global economy is facing uncertainty due to trade frictions, which are disrupting economic stability.
• 😀 The Reserve Bank of India (RBI) celebrated its 90th anniversary, having evolved into a comprehensive central bank since its inception in 1935.
• 😀 The RBI's Monetary Policy Committee (MPC) unanimously decided to reduce the policy repo rate by 25 basis points to 6% to support growth.
• 😀 The global economic outlook has worsened, with a weakening US dollar, declining bond yields, and falling crude oil prices.
• 😀 India's economic growth projections for 2025-2026 are at 6.5%, though impacted by global uncertainties and trade disruptions.
• 😀 Inflation in India is under control, with a sharp drop in food inflation and improved inflation expectations, contributing to price stability.
• 😀 The RBI has changed its monetary policy stance from neutral to accommodative, signaling the possibility of further rate cuts or maintaining the current rates.
• 😀 The MPC is monitoring global uncertainties and weather-related risks that could affect both inflation and growth in India.
• 😀 The Indian economy is supported by a resilient services sector, strong agriculture prospects, and robust consumer demand, particularly in rural areas.
• 😀 The RBI is focused on maintaining adequate system liquidity, with recent surplus conditions reflecting improved liquidity management.
• 😀 Six new regulatory measures were announced, including enabling securitization of stressed assets, guidelines on co-lending, and new rules for gold loans and infrastructure financing.

Q & A

What is the significance of the Reserve Bank of India (RBI) completing 90 years of operation?

The completion of 90 years marks a significant milestone for the RBI, showcasing its close relationship with India's development and progress. Over these nine decades, the RBI has evolved into a full-service central bank responsible for maintaining monetary and financial stability.

What is the current global economic situation, and how is it affecting India?

The global economy is facing heightened uncertainty, primarily due to trade frictions and geopolitical issues. These factors have led to a weaker US dollar, fluctuating equity markets, and falling crude oil prices. India is experiencing these global disruptions but is also witnessing steady progress in its economy despite external challenges.

What were the key decisions taken by the Monetary Policy Committee (MPC) in April 2025?

The MPC decided to reduce the policy repo rate by 25 basis points to 6%, effective immediately. They also adjusted the Standing Deposit Facility (SDF) rate to 5.75%, and the Marginal Standing Facility (MSF) rate to 6.25%. Furthermore, the MPC changed its stance from neutral to accommodative to support growth.

How did the RBI justify the reduction in the policy repo rate?

The RBI justified the rate reduction by pointing to the decline in food inflation, a favorable inflation outlook, and the need to support growth in the face of global economic uncertainties. The MPC aims to align inflation with the 4% target while supporting the recovery of growth.

What does the shift from a 'neutral' to 'accommodative' monetary policy stance mean?

The shift to an accommodative stance signals that the RBI is focusing on supporting economic growth. This stance suggests that, in the absence of any major economic shocks, the MPC is more likely to reduce rates further or maintain the current rate to promote economic activity.

What are the projections for India's GDP growth in FY 2025-26?

India's GDP growth is projected at 6.5% for FY 2025-26, slightly down from the previous projection of 6.7%. The growth rate reflects challenges due to global uncertainties, but the Indian economy is expected to benefit from strong agricultural performance and a resilient services sector.

How does global trade uncertainty impact India's inflation outlook?

Global trade uncertainties pose risks to inflation. While a slowdown in global growth may lead to lower commodity and crude oil prices, there is also a risk of imported inflation due to currency pressures. The RBI remains vigilant, but overall, the inflation outlook remains manageable.

What steps is the RBI taking to ensure sufficient liquidity in the financial system?

The RBI is committed to maintaining adequate liquidity in the system by monitoring evolving market conditions. Measures taken, such as the recent reduction in liquidity deficit, have resulted in improved liquidity. The RBI will continue to proactively manage liquidity to support the economy.

What are the key risks to India's growth projections for FY 2025-26?

The main risks to India's growth projections are global trade disruptions, geopolitical tensions, and external economic factors that could dampen exports and investment. These uncertainties could hinder the domestic growth trajectory despite the positive outlook in agriculture and manufacturing.

What additional regulatory measures did the RBI announce in this policy statement?

The RBI announced several regulatory measures, including enabling the securitization of stressed assets, extending co-lending arrangements to all regulated entities, harmonizing gold loan guidelines, revising non-fund-based facility regulations, and allowing NPCI to adjust transaction limits for UPI payments. Additionally, the RBI made the regulatory sandbox theme-neutral and on-tap.