Key Policy Decisions by RBI Monetary Policy Committee
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.50%, maintaining a neutral stance.
The Standing Deposit Facility (SDF) rate remains at 5.25%, while the Marginal Standing Facility (MSF) rate and the Bank Rate stay at 5.75%.
The RBI announced several developmental and regulatory measures to strengthen the financial ecosystem. These include:
- Expected Credit Loss (ECL) Framework for Provisioning: RBI to shift banks from incurred loss to expected credit loss model to strengthen credit risk management and comparability.
- Basel III Guidelines on Capital Charge for Credit Risk - Standardised Approach: RBI to implement revised Basel standards to make credit risk capital calculation more granular and risk-sensitive.
- Forms of Business and Prudential Regulation for Investments: Final guidelines to streamline banks’ group activities and investments while easing restrictions on business overlaps.
- Risk-Based Premium Framework for Deposit Insurance: DICGC to introduce risk-based premiums, rewarding financially sound banks with lower insurance costs.
- Review of Capital Market Exposures Guidelines for Banks: RBI to relax lending norms for share acquisitions and listed securities, enabling broader capital market financing.
- Risk Weights on Infrastructure Lending by NBFCs: NBFCs’ capital adequacy norms to be rationalised by aligning risk weights with the actual risks of operational infrastructure projects.
- Review of Restrictions on Transaction Accounts: RBI to ease restrictions on current, cash credit, and overdraft accounts, offering more flexibility to regulated borrowers.
- Foreign Currency Accounts by Indian Exporters - IFSC: Exporters in IFSC Banking Units to get 3 months (up from 1) to repatriate funds, boosting forex liquidity in IFSCs.
- Merchanting Trade Transactions (MTT): The Forex outlay period for merchanting trade extended from 4 to 6 months to ease trade disruptions.
- Relaxation for Small Value Exporters/Importers: Simplified self-declaration process for bills up to INR 10 lakh to ease compliance in export-import monitoring systems.
- Review of External Commercial Borrowing (ECB) Framework: RBI to liberalise ECB rules by widening eligible participants, easing maturity norms, and simplifying reporting.
- Rationalisation of Regulations for Branch/Liaison/Project Offices: Revised principle-based framework to delegate more powers to AD (Authorised Dealer) banks and cut compliance for foreign entities in India.
- Review of Basic Savings Bank Deposit (BSBD) Account: BSBD account norms to be revamped for affordable, digitally aligned financial inclusion.
- Strengthening Internal Ombudsman Mechanism: Internal Ombudsmen in banks to get compensation powers and a two-tier grievance redress system for faster resolutions.
- Review of RBI - Integrated Ombudsman Scheme, 2021: Scheme to expand to State and District Cooperative Banks and simplify complaint handling for faster redressal.
- Lending in INR by AD Banks to Foreign Residents: AD banks and their overseas branches are to be allowed INR lending to residents of Bhutan, Nepal, and Sri Lanka to boost trade.
- Additional Reference Rates by FBIL: FBIL (Financial Benchmarks India Limited) to include select currencies of India’s major trading partners in the list of reference rates to deepen forex markets and improve efficiency.
- Expanding Investments for SRVA Holders: SRVA (Special Rupee Vostro Accounts) surplus balances can now be invested in corporate bonds and commercial papers to enhance rupee-based trade settlement.
Read More: RBI Monetary Policy December 2025
Growth Outlook
The RBI revised India’s GDP growth forecast for FY 2025–26 to 6.8%, up from 6.5% earlier. The upward revision reflects strong domestic demand, sustained investments, and continued government spending.
India’s real GDP grew 7.8% in Q1 FY 2025-26, compared to 7.4% in the previous quarter - the fastest pace in seven quarters.
Growth is projected at 6.8% for FY 2025-26 (Q1: 7.8%, Q2: 7.0%, Q3: 6.4%, Q4: 6.2%), and 6.6% for FY 2026-27, assuming a normal monsoon and stable global conditions.
Consumer confidence has improved further for both urban and rural households, as shown by the Future Expectations Index.
Overall, a robust services sector, structural reforms, and policy support are sustaining India’s growth momentum amid global uncertainty.
Inflation Outlook
(Data Source: MoSPI, Government of India)
The RBI lowered its CPI inflation forecast for FY 2025–26 to 2.6%, down from 3.1%.
Actual inflation in Q4 FY 2024-25 and Q1 FY 2025-26 was lower by 90 basis points compared to earlier projections of 3.8% and 3.6%, respectively. The decline was driven by a sustained nine-month fall in food prices of 10.5%.
Milder summer temperatures further eased seasonal pressures, keeping realised inflation below expectations through H1 FY 2025-26.
The GST rate rationalisation has simplified tax slabs and lowered prices across 11.4% of the CPI basket, particularly in consumer goods and daily essentials.
External Sector & Trade Outlook
India’s current account deficit (CAD) narrowed sharply to 0.2% of GDP in Q1 FY 2025-26, down from 0.9% a year earlier. The improvement was driven by strong services exports and remittances of USD 35.3 billion, keeping India the world’s largest recipient of private remittances.
Cumulative exports (merchandise and services) during April-September 2025 stood at USD 413.3 billion, compared to USD 395.7 billion in the same period of 2024 - a growth of 4.45%.
Gross FDI inflows remained strong at USD 37.7 billion during April-July 2025, reflecting India’s continued attractiveness as an investment destination. Net FDI inflows rose to USD 10.8 billion, led by Singapore, the US, Mauritius, the UAE, and the Netherlands, which together accounted for 76% of total FDI.
Overall, the external sector remains resilient, supported by robust capital inflows, stable remittances, and steady export growth.
Liquidity & Market Sentiments
During April-September FY 2025-26, Indian equity markets maintained an upward trajectory, despite brief volatility due to trade policy shifts and geopolitical tensions.
The BSE Sensex rose 3.9% in this period, while mid- and small-cap indices outperformed.
The rupee moved both ways amid global uncertainty but stayed among the most stable emerging market currencies, supported by a low current account deficit, strong exports, remittances, and solid forex reserves.
DhruvStar Industry Insights: What it Means for the Indian Industry
- Capital Expansion Opportunity: With the repo rate steady at 5.50%, borrowing costs remain predictable - corporates may lock in long-term funding and accelerate capacity expansion.
- Demand Improvement: Softer price pressures and a 2.6% CPI forecast point to improved purchasing power, supporting demand across autos, housing, and FMCG.
- External Stability: A narrow CAD and steady FDI inflows provide currency stability, reducing hedging costs and supporting cross-border investments.
- Market Optimism: Positive equity sentiment and strong mid-cap performance indicate improved liquidity chances and scope for new listings, fundraises, and corporate restructuring.
Sources
[1] RBI
[2] PIB
[3] MoSPI
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