Monetary Policy and Economic Outlook:
Dovish policy with flood of liquidity
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Key Policy Rate: Changes & Trends
Overview of major changes in key policy rates
• The Monetary Policy Committee (MPC) meeting held from April 7 to 9, 2025, resulted in several key policy
changes aimed at supporting economic growth.
• The policy repo rate was reduced by 25 basis points to 6.00%, with the standing deposit facility (SDF) rate
adjusted to 5.75%. The marginal standing facility (MSF) rate and Bank Rate were set at 6.25%.
• The MPC also shifted its monetary policy stance from neutral to accommodative, indicating a preference for
softer interest rates to stimulate the economy.
• While the cash reserve ratio (CRR) was reduced to 4.0% in December 2024, this change occurred prior to the
April 2025 meeting.
Repo Rates (%) Reverse Repo Rates (%)
6.6 4.4
6.5 4.1
6.4 3.8
6.3 3.5
6.2 3.2
6.1 2.9
6.0 2.6
5.9 2.3
5.8 2.0
Cash Reserve Ratio (%) Statutory Liquidity Ratio (%)
4.6
19.2
4.5 19.0
4.4 18.8
4.3 18.6
4.2 18.4
4.1 18.2
4.0 18.0
3.9 17.8
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GDP: Growth Outlook & Trends
GDP growth outlook & any revisions thereto
• The outlook for India’s GDP reflects a moderate growth trajectory, with an estimated 6.5% growth for the
financial year 2024-25, following a robust 9.2% growth in 2023-24. The second advance estimates for 2024-25
also project a 6.5% year-on-year growth, slightly higher than the initial 6.4% forecast.
• For 2025-26, real GDP growth is projected at 6.5%, though this represents a 20bps downward revision from
earlier expectations of 6.7%, primarily due to global trade challenges and policy uncertainties.
• Several domestic factors, including strong demand from rural areas, a revival in urban consumption, increased
government capital expenditure, and healthy corporate and banking sectors, are expected to provide support
for growth.
• The agriculture sector’s positive prospects, along with recovering industrial activity and resilience in the services
sector, further bolster this outlook. However, global headwinds, particularly from uncertain trade dynamics and
potential disruptions in global supply chains, continue to pose significant risks to growth.
• If global economic growth falls 100 basis points below expectations, India’s domestic growth could be 30 basis
points lower. Conversely, a stronger global economy could boost domestic growth by about 25 basis points.
Professional forecasters polled in March 2025 project a growth range of 6.5-6.7% for 2025-26, though the
outlook remains highly sensitive to global economic conditions.
Real GDP Growth Rate (%) Real GDP (in INR tn)
16
200
14
190
12
180
10
8 170
6 160
4
150
2
140
0
130
FY20 (AF) FY21 (AF) FY22 (AF) FY23 (FE) FY24 (FRE) FY25 (SAE)
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Inflation: Outlook & Trends
Headline & food inflation outlook & any revisions thereto
• As of February 2025, headline CPI inflation declined to 3.6%, driven by lower food inflation and deflation in the
fuel group. Core inflation rose to 4.1%.
• For FY 2025-26, CPI inflation is projected at 4.0%, with quarterly projections of 3.6% in Q1, 3.9% in Q2, 3.8% in
Q3, and 4.4% in Q4. Key supporting factors include favorable food inflation due to strong vegetable price
corrections, higher wheat and pulse production, and lower crude oil prices.
• Inflation expectations have declined. Upside risks include global market uncertainties, potential weather
disruptions, and global trade and policy challenges.
• The current 4.0% projection aligns with the medium-term inflation target.
Inflation Trends
Headline Inflation (%) Food Inflation (%)
14
12
10
8
6
4
2
0
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Other major changes in the RBI policy & Conclusion
The Governor's Statement from 9th April 2025, announced six additional measures:
• Securitization of Stressed Assets: Proposes enabling the securitization of stressed assets through a market-
based mechanism, in addition to the existing ARC route under the SARFAESI Act, 2002, to address non-
performing assets more effectively.
• Extension of Co-Lending Guidelines: Proposes extending the co-lending guidelines to all regulated entities
and to all types of loans, including those outside the priority sector, to unlock greater potential in co-lending
arrangements.
• Comprehensive Regulations for Gold Loans: Proposes issuing comprehensive regulations for gold loans
across regulated entities, covering both prudential norms and conduct-related aspects, while considering the
risk-bearing capabilities of the entities.
• Harmonization of Non-Fund-Based Facilities: Proposes issuing guidelines to harmonize the regulations
governing non-fund-based facilities across all regulated entities and revising instructions on partial credit
enhancement to broaden funding sources, particularly for infrastructure financing.
• UPI Transaction Limits for P2M Transactions: NPCI will be empowered to set transaction limits for UPI
person-to-merchant transactions in consultation with banks and other stakeholders, providing more flexibility
in payment systems.
• Regulatory Sandbox Theme-Neutral and On-Tap: The Regulatory Sandbox will be made theme-neutral and
available on an ‘on-tap’ basis, allowing for more continuous innovation and testing in fintech.
Conclusion – Way ahead
Following sectors are set to benefit with the recent dovish stance taken by RBI:
• Banking & NBFC,
• Housing Finance,
• Real Estate,
• Automobile, &
• Consumption
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