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  The Reserve Bank of India adopted its current monetary policy framework in August 2016, under the governorship of Dr. Raghuram Rajan. This marked a major shift in the monetary policy formulation process in India. In the pre-independence era, the function of monetary policy was mainly to maintain the sterling parity, with the exchange rate being the nominal anchor of monetary policy. Liquidity was regulated through open market operations (OMOs), bank rate and cash reserve ratio (CRR). After independence, India adopted the planning model of development, loosely based on the USSR model. The role of RBI monetary policy in this model was mostly to regulate credit availability, employing OMOs, set bank rate and reserve requirement in congruence with the planning objectives and development needs of the country. The monetary policy framework witnessed a major shift between from mid 1980s to late 1990s. In 1985, on the recommendation of the (Dr. Sukhamoy) Chakravarty Committee, a new mone...

  Federal Reserve Chair Jerome Powell delivered his final keynote address at the Jackson Hole Economic Symposium on August 22, 2025, hosted by the Federal Reserve Bank of Kansas City. The speech focused on the U.S. economic outlook and the Federal Reserve’s monetary policy framework review, addressing the Fed’s dual mandate of price stability and maximum employment. In his speech, Powell noted the U.S. economy’s resilience despite challenges from President Donald Trump’s tariffs and immigration policies. Inflation remains above the Fed’s 2% target (PCE index at 2.6% in June 2025), driven partly by tariff-related price increases, while the labor market shows signs of weakening, with July’s job growth at 73,000, well below expectations, and downward revisions of 258,000 jobs for May and June. Monetary Policy Outlook: Powell signaled openness to interest rate c uts at the September 16-17, 2025, FOMC meeting, admitting that monetary policy is in restrictive territory, and the base...

In July 2025, India’s consumer price inflation (CPI) hit an eight year low of 1.55% (yoy). Several factors contributed to the fall in inflation, including, a favorable base effect, lower fuel inflation, and decline in beverages and food prices. Since the inflation is much below the RBI tolerance range of 4% to 6%, it has excited the market participants about another rate cut at the RBI’s October 2025 Monetary Policy Committee (MPC) meeting. The prospect of lower Goods and Services Tax (GST) rates from November 2025, which could keep inflation subdued further, has added fuel to the speculations. However, notwithstanding what RBI does at its next meeting, we need to answer a fundamental question - Is this low inflation—or even disinflation—a desirable thing for a growing economy like India? Positive side of low inflation Boost to Consumer Spending:  Lower prices for essentials like vegetables and pulses mean more disposable income, which could spur consumption in a country where priv...

The Monetary Policy Committee (MPC) of the Reserve Bank of India concluded its three-day meeting on Wednesday. The committee voted unanimously to keep the policy repo rate unchanged at 5.50 per cent. The MPC also decided to continue with the neutral monetary policy stance. The MPC noted the favorable domestic conditions like (i) inflation lower than estimates and closer to the lower bound of the policy tolerance limits; (ii) Robust growth, though below aspiration; (iii) transmission of the 100bps policy rate cuts continuing and its impact on the economy unfolding. Urban consumer demand tepid, investment demand remains supported by govt capex The MPC also noted that on the demand side: “Rural consumption remains resilient, while urban consumption revival, especially discretionary spending, is tepid.” However, “Fixed investment supported by buoyant government capex continues to support economic activity”. Farm sector buoyant, services steady, industrial growth subdued On the su...

  India’s external debt hit US$736.3bn by March 2025, a 10% jump from last year, with a significant portion (over 41%) of the debt maturing soon. As the US threatens 500% tariffs on countries buying Russian oil, including India, investors need to evaluate: Can India afford a confrontation with the US, China and other major trade partners, and could it withstand a covert economic embargo? Here’s my take, may be naïve and ill informed, but nonetheless relevant. India’s External Debt According to the Reserve Bank of India (RBI)  latest release , India’s external debt stood at US$736.3bn at the end of March 2025, with a debt-to-GDP ratio of 19.1%. Key highlights of the data are: Long-Term Debt:  US$601.9bn, up US$60.6bn from last year, with commercial borrowings and non-resident deposits driving growth. About 77% (US$568bn) of this debt is owed by non-government entities. The non-government debt is almost equally divided between financial institutions (US$271.3bn) and non-fin...

The Reserve Bank of India holds US$702.78bn in foreign exchange reserves. In the popular macroeconomic analysis, especially in the context of the equity market. this piece of data is often used as one of the points of comfort by analysts. This data could be viewed from multiple standpoints. For example – Is it adequate to pay for the necessary imports in the near term , assuming the worst-case scenario of no exports could be made and no remittances are received. Currently, India’s monthly imports are appx US$67bn. However, a material part of these imports is crude oil and bullion. A part of the crude oil and bullion is re-exported after refining/processing. I am unable to figure out the precise net import number for domestic usage, but it would be safe to assume that about three fourth of US$67bn, i.e., US$50bn is for domestic usage. Allowing another 20% for “avoidable in emergencies” category of imports, we have appx US$40bn/month import bill payment obligations. By this benchmark we ...

After several years of corporate & bank balance sheet repair and fiscal correction, the contours of India's next economic growth cycle are beginning to emerge. With the Reserve Bank of India (RBI) maintaining a growth-supportive stance; union government showing strong commitment to fiscal consolidation, easing financing pressures for the private sector; and global markets showing signs of stabilization as geopolitical confrontations ease and trade disputes settled; the stage is set for a potential economic upswing. The spotlight is now on three competing themes — corporate consolidation, private capex, and household consumption — each pulling investor attention in different directions. Corporate begin to re-leverage After many years of deleveraging, corporate debt in India appears to have bottomed out and is now beginning to rise. This shift in trajectory marks a significant departure from the post-2016 era, where Indian companies focused on strengthening balance sheets followi...

  While the 7.4% GDP growth number for 4QFY25, and claims of continuing strong growth momentum in April 2025 are encouraging, the RBI assessment of FY26 growth and aggressive policy stance raise some doubts. A careful analysis of the GDP data released by the NSO also leaves some doubts about the consistency and sustainability of the 4QFY25 growth numbers. Many economists have noted discrepancies and incongruencies in the data, as well as comparisons with other economic indicators and external analyses. For example, I found the following noteworthy. Discrepancy Between GDP and GVA Growth Rates In Q4 FY25, GDP growth is 7.4%, while GVA growth is 6.8%. The divergence between GDP and GVA growth rates is notable, as GDP includes net taxes (taxes minus subsidies), which can distort the picture of underlying economic activity captured by GVA. The gap suggests that tax revenues or subsidy adjustments may have inflated GDP growth relative to GVA. For instance, higher GST collections or redu...

The Reserve Bank of India’s (RBI) monetary policy statement on June 6, 2025 marked a significant shift in India’s monetary policy framework, reflecting a bold approach to stimulate economic growth while navigating global uncertainties and domestic inflation dynamics. Policy rates cut by 50bps to support growth The Monetary Policy Committee (MPC) reduced the policy repo rate by 50 bps to 5.50%, a larger-than-expected cut compared to market expectations of a 25bps reduction. This was the third consecutive rate cut in 2025, following reductions in February (6.5% to 6.25%) and April (6.25% to 6.00%). Consequently, the Standing Deposit Facility (SDF) rate was adjusted to 5.25%, and the Marginal Standing Facility (MSF) rate and Bank Rate to 5.75%. This sharp cut in rates is aimed at accelerating the growth. Pertinent to note that FY25 real GDP grew by 6.5% yoy, and is expected to grow at a similar or lower rate in FY26. Considering the fragile global conditions, it is imperative to sup...