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RBI Monetary Policy Statement

Present Scenario:
Onset of early onset Monsoon will compliment economy
However, financial stability concerns are raised in global economies due to:
Global backdrop-fragile & fluid
Uncertainty in global economic outlook
Fed negotiations
Weak global growth prospects
Economic & financial fragmentation - reshaping global economy
Elevated debt levels
Complex financial scenarios
Growing influence of AI
Hightened volatality in capital flows
Constrained policy space

Tougher task for Central banks of emerging economies (Brazil, China, India, Indonesia, Mexico, and South Korea. )

Indian Economy
Strong balance sheet of 5 Major sectors-Corporate, Bank, Household, Government,External sectors
Stability on all 3 fronts:Price, Financial & Political - Political & Economic stability in dynamic global situation
Offers emmense opportunity for investors- both domestic and foreign through 3Ds
a) Demography- high proportion of the working age population
b) Digitalization- advanced and sophisticated public digital infrastructure
c) Domestic demand- core strength to cushion the Indian economy against global spillovers
Growing at a very fast pace -6.5% (aspire to grow faster in the future)
Efforts- Vixit Bharat by 2047

Monetary Policy Committee Decisions

Committee met 4-6th Jun (decide on policy)

After a detailed assessment of the evolving macroeconomic and financial developments and the economic outlook- reducti
SDF Rate- adjusted to 5.25%
MSF rate and the bank rate- adjusted to 5.75%

Rationale for these decisions-

1) Inflation- softened significantly over the last 6 months
signs of a broad-based moderation the near-term
earlier inflation projected for this yr- 4%
food inflation outlook- remains soft core
increase in international commodity prices in line with the anticipated global growth -slowing down the inflation outlook
therefore, this year revised downwards from earlier forecast of 4% to 3.7%
Change in growth inflation dynamics-
imperative to continue to stimulate domestic private consumption and investment through the policy levers to step up the
MPC voted to reduce the repo rate by 50 basis points to 5.5%

Present circumstances monetary policy is now left with very limited space to support growth
> MPC- change the stance from accommodative to neutral

Assessment of Growth and Inflation:

domestic economic activity has exhibited resilience
agriculture sector remains strong with a very good harvest in both the karif and rabi cropping seasons.
supply of major food crops is comfortable, reservoir levels remain healthy
reservoir levels remain healthy

PMI Services= 58.8 (May 25)-indicating a very robust expansion in activity on the demand side private consumption
main stay of aggregate demand about 56% of the total GDP remains healthy
gradual rise in discretionary spending rural demand remains steady
urban demand is improving investment activity

merchandise exports recorded a strong growth in April 2025

Reasons: front loading
non-oil non- gold imports posted a double-digit growth reflecting buoyant domestic demand conditions

services exports continue on a very strong growth trajectory

(last month figures quite robust)

outlook for agriculture sector and rural demand is expected to receive further impetus by the expected above normal sout
sustained buoyancy in services activity should nurture revival in urban consumption
healthy balance sheets of banks and corporates government's continued thrust on capeex elevated capacity utilization
(improving business optimism and easing of financial conditions, should further help revive investment activity trade polic
however continues to weigh on merchandise exports
conclusion of the free trade agreement with the United Kingdom
negotiations with other countries should provide a philillip to trade spillovers emanating from protracted geopolitical tens
weather related uncertaintities pose downside risks to growth (taking all these factors into consideration)
real GDP growth rate for this year 2526 is projected at 6.5%
Earlier forecast- Q1 at 6.5 Q2 at 6.7 Q3 at 6.6 and Q4 at 6.3%

Inflation-
cpi headline inflation continued its declining trajectory in both March and April
headline inflation moderated to a nearly six-year low (69 yrs)
3.2% in April 2025
led mainly by food inflation which recorded the sixth consecutive monthly decline fuel group
(earlier witnessing deflationary conditions, reversal of deflationary conditions and has recorded positive inflation prints in
partly because of the hike in LPG prices core inflation remained largely steady and contained during March and April
despite the increase in gold prices
This exerted an upward pressure the outlook for inflation

higher production of key pulses in the rubby crop season should ensure adequate supply of key food items

monsoon along with its early onset augers well for karif crop prospects
reflecting this inflation expectations are showing a moderating trend (more so for the rural households)

most projections point towards continued moderation in prices of key commodities (eg. Crude oil)
remain watchful of weather related uncertaintities and the still evolving tariff related concerns with their attendant impac

assuming a normal monu monsoon CPI inflation for the financial year 25-26 is now projected at 3.7%
rojecting inflation for Q1 at 2.9% Q2 at 3.4% 4% Q3 at 3.9 and Q4 at 4.4% (with evenly balanced risks)

External sector
moderation in trade deficit in Q4 24-25
alongside strong services exports and remittance receipts
current account deficit for last year 24-25 is expected to remain low- yet to get the final figures
despite rising geopolitical uncertaintities and trade tensions India's merchandise trade remained robust in April 2025
as imports grew faster than exports
trade deficit however widened during Apr
net services and remittance receipts are likely to remain in surplus
counterbalancing the rise in trade deficit the current account deficit
levels on the financing side in 2425 foreign portfolio investment to India dropped sharply to 1.7 billion US
foreign portfolio investors booked profits in equities

NET FTI
concern regarding foreign exchange reserves where the net becomes important
not only the net in the inflows but also the outflows
lead to either an accretion or a depletion in the foreign exchange reserves

Gross FDI increased sharply (14%)

so India continues therefore to be an attractive uh investment destination (despite moderation)
Moderation- primarily because of rise in repatriation (good sign of a maturing market where foreign investors can anter an
in addition to which hire gross FTI (sign of large ind going out and investing)

indicates that India continues to be a good and attractive investment destination

external commercial borrowings and non-resident deposits on the other hand witnessed higher net inflows compared to t
India's foreign exchange reserves stood at 691.5 billion US
sufficient to fund more than 11 months of goods imports
about 96% of external debt

external sector remains resilient as key external sector vulnerability indicators continue to improve

liquidity and financial market conditions

RBI - (since January) injected lot of lot of durable liquidity through various means through OMOS through the CRR rate cut
9.5 lakh cr rupees- durable liquidity has been injected uh into the banking system since January
remaining in deficit since mid December liquidity conditions have transitioned to a surplus at the end of March
evident from the trepid response to the daily VR auctions
which got a bid coverage ratio of only 0.26 in the recent past
high STF uh balances they are averaging about two lakh cr rupees in the last two months
improvement in liquidity conditions the weighted average call rate is the operating target for the monetary policy

Banking system- further reinforced transmission of policy repo rate cuts to the short-term rates
yet to see a perceptible transmission
Although - incipient signs of transmission to the credit market segment
Reserve Bank remains committed as we mentioned earlier to provide sufficient liquidity to the banking system to further p
decided to reduce the cash reserve ratio the CRR by 100 basis points
from 4% to 3% of net demand and time liabilities this will be done in a staggered manner

four equal tranches of 25 basis points each coming into effect from the fortnights beginning:
Sep 6, Aug 4, Nov 1 and Nov 29
cut in CR would release primary liquidity of about 2.5 lakh cr rupees to the banking system by the end of November 2025
Effect-
providing durable liquidity
reduce the cost of funding of the banks
(helping and accelerating the monetary policy transmission to the credit market)
continue to monitor the evolving liquidity and financial market conditions and proactively take further measures
(for liquidity and for monetary policy transmission)

FINANCIAL STABILITY
asset quality parameters liquidity buffers and profitability parameters have shown further improvement
credit deposit ratio for the banking system at the end of December 2024 was at 81.84% (broadly similar to that of last year
stress witnessed earlier in retail segments like unsecured personal loans and credit card receivables portfolio has abated
stress in micro finance segment is still persisting
banks and NBFCs active in these segments however are-
recalibrating their business models
strengthening their credit underwriting practices
stepping up their collection and recovery efforts to avoid any excessive buildup of risks

Indian economy is progressing well

strong macroeconomic fundamentals
provide space to monetary policy to support growth while remaining consistent with the goal of price stability

as global environment remains uncertain- important to focus on domestic growth amidst sustained price stability
no tussle between price stability and growth in the medium
long term price stability preserves purchasing power it imparts certaintity to households as well as to businesses in their sa
ensures congenial interest rate and financial conditions
foster consumption investment and overall activity and therefore growth
crucial for equitable growth and shared prosperity
its absence is disproportionately burdensome on the poor
price stability is a necessary condition it is of course not sufficient to ensure growth
supportive policy environment is vital and this is even more important during periods of high uncertaintities
55th 06.06.2025 Sanjay Malhotra