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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...

The 3-day bi-monthly meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) begins today. This would be the last meeting before presentation of the Union Budget for the year FY26. The members of the MPC would draw inputs from the latest national accounts (2QFY25 GDP data); October 2024 inflation data; October 2024 Professional managers’ survey results; September 2024 IIP estimates; November 2024 PMI and core sector growth data; April-October fiscal balance data; global developments (political and geopolitical); global inflation, rates, currency and market trends; expert opinions and views of the members of MPC; and assessment of the current and future situation provided by the staff of RBI. The statement of the MPC on macroeconomic outlook and likely direction of the monetary policy will be a key input in preparation of the Union Budget for FY26. However, the market participants’ interest in the MPC meeting appears limited to whether, or not, at 10AM on 6 th ...

  Sitharaman, Powell toss the ball in Das’s court Wednesday night, the Federal Open Market Committee (FOMC) decided to maintain the status quo on policy rates for the fourth successive review. The Committee reiterated that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward two percent.” The Committee however made it quite clear that any rate hike from the present level is no longer on the table. In the post-meeting press meeting, Fed Chairman Jerome Powell indicated that FOMC may not consider rate cuts in its next meeting in March 2024. The market is thus expecting a rate cut in May 2024. In another development, the Union Finance Minister, Ms. Nirmala Sitharaman, presented an interim budget for the fiscal year 2024-25. Two notable features of the interim budget were (i) Nominal GDP growth projection for FY25 at 10.5%, implying a well-controlled inflation environment; and (ii) F...

From the Bollywood movie ‘Chak De India’ (Dir. Shimit Amin, 2007), the climax sequence has been particularly popular. It is perhaps one of the most popular, inspiring, and quoted pieces of Indian cinema. In one part of the climax, the protagonist (played by Shah Rukh Khan), who is the coach of the Indian national women’s hockey team, is guiding the team in the World Cup final match against the defending champion Australia. During a penalty shootout, the coach tries to anticipate the penalty shot of the Australian striker by reading her body language – leg position, eyes, hockey stick and wrist position etc. – and correctly concludes that the striker will hit the ball straight and guides the Indian goalkeeper to stay still in the middle of the goal post. The goalkeeper saves the critical penalty and India wins the match. Today the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is meeting for the last time in 2023 to review its monetary policy stance. The Governor o...

Recently released minutes of the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) highlighted that the latest policy stance is primarily ‘Wait and Watch”. This stance is driven by the hopes of: (a)    Mother Nature helping a bountiful crop (especially vegetables); (b)    Current rise in inflation being transitory in nature; but MPC is ready to preempt the second-round impact; (c)    Capex (both public and private) sustaining despite positive real rates and diminishing liquidity and continuing to remain broad-based; (d)    Growth in the Indian economy staying resilient enough to withstand the external challenges; and (e)    Government taking adequate steps to mitigate supply-side shocks, while maintaining fiscal discipline, trade balance, and growth stimulus. Evidently, RBI has no solid basis for making these assumptions. The monsoon is not only deficient, it is poor both temporally and spati...

  RBI monetary policy statement highlights ·          Status quo on policy rates and monetary policy stance (withdrawal of accommodation). ·          The MPC resolved to continue keeping a close vigil on the evolving inflation and growth outlook. It will take further monetary actions promptly and appropriately as required to keep inflation expectations firmly anchored and to bring down inflation to the target. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. ·          Domestic economic activity remains resilient in Q1:2023-24 as reflected in high frequency indicators. Purchasing managers’ indices (PMI) for manufacturing and services indicated sustained expansion, with the manufacturing PMI at a 31-month high in May and services PMI at a 13-year high ...

It’s almost a year since the Reserve Bank of India shifted the course of its monetary policy stance and embarked on the path of monetary tightening and withdrawal of accommodation to reign in runaway inflation. In the course of its journey in the past one year, RBI reversed the entire 250bps of rate cuts made during 2019-2020.  Besides hiking the policy repo rate, RBI also enforced correction in banking system liquidity to check the demand side pressures on inflation. The banking system liquidity that was running in excess of rupees eight trillion a year ago, has been completely neutralized. Impact of monetary tightening It is very difficult to assess the direct impact of the RBI’s monetary policy action and its consequences. Nonetheless, it is pertinent to note how various sub segments of the economy have moved in the past one year. This movement could have been caused by a variety of factors, RBI tightening being one of them. Inflation The Consumer Price Index Inflation (CPI...

  The market has generally responded to the RBI pause on rate hikes positively. The financial sector stocks, especially non-banking lenders, have attracted particular interest from investors and traders. The analysts have also been marginally positive on the sector post the shift in RBI stance. The RBI, in its latest policy statement, (i) paused the streak of rate hikes; (ii) maintained the “withdrawal of accommodation” monetary policy stance; (iii) upgraded the GDP growth estimates for FY24; and (iv) indicated inflation to stay closer to upper bound of policy tolerance range (4-6%) with upside risks. For a common small investor like me this translates into the following: (a)     Banks may find it hard to hike lending rates, especially the floating rate loans indirectly pegged to the policy rates. It is pertinent to note that most banks did not pass on the entire repo rate hike of 225bps done in the past one year, to the borrowers. (b)     The liquidit...

  The Reserve Bank of India (RBI) governor declared victory for its policy stance in unambiguous terms while presenting the latest monetary policy statement. He stated, as a result of various policy measures taken by RBI since April 2022 “the real policy rate has been nudged into positive territory; the banking system has moved out of the   Chakravyuh   of excess liquidity; inflation is moderating; and economic growth continues to be resilient”. MPC remains predictive – 25bps hike with stance unchanged The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) in its meeting held over the past three days decided to hike the policy repo rate by 25bps to 6.75%. The decision was taken by a majority vote with four members voting in favour and two members voting against the hike. The MPC also maintained its monetary policy stance of withdrawal of accommodation with a split vote of 4 to 2. The decision of the MPC and voting pattern is mostly in line with the consens...