Team TrickyScribe: In a move that could shape India’s economic trajectory in FY 2025–26, the Reserve Bank of India (RBI), in its 54th Monetary Policy Committee (MPC) meeting, unanimously slashed the policy repo rate by 25 basis points to 6%. This is the rate at which the RBI lends to commercial banks. The decision, while conservative, signals a shift toward stimulating lending, investments, and consumer spending amid improving domestic conditions and global uncertainties.
Growth with Caution: RBI Eyes 6.5% GDP in FY 2025–26
The central bank retained its real GDP growth forecast at 6.5% for the current fiscal, despite trimming projections slightly for Q4. The Indian economy, after a robust 9.2% expansion in the previous year, is witnessing a gradual but promising recovery. Manufacturing is picking up momentum, services remain resilient, and infrastructure investments are buoyed by strong public spending. However, external trade uncertainties and volatile global markets remain key concerns.
Cooling Prices: Inflation Falls Within Target Band
Headline inflation, particularly food inflation, showed a sharper-than-expected decline in early 2025. With robust agricultural output and stable crude prices, the CPI inflation is projected at 4% for FY 2025–26, comfortably within the RBI’s target band of 2–6%. Encouragingly, inflation expectations have also moderated, hinting at sustained price stability – a green signal for further policy easing if necessary.
Liquidity Eases, Credit Set to Flow
The liquidity crunch observed in early 2025 was met with proactive intervention from the RBI, injecting over ₹6.9 lakh crore into the banking system. As a result, the liquidity position turned into a surplus by April, bringing down borrowing costs. Market indicators like the Weighted Average Call Rate and yields on Commercial Papers have softened, enabling banks and corporates to access funds more cheaply – a development that could energize credit growth in the coming quarters.
Robust External Metrics: Strong Forex, Stable CAD
India’s external sector remains resilient. Software and business services continue to lead services exports, while remittance inflows remain robust. The current account deficit is expected to stay within sustainable limits, helped by reduced oil prices and strong inward flows. With forex reserves at USD 676.3 billion, India enjoys an 11-month import cover, signaling strength in external buffers amid global headwinds.
A Legacy of Stability: RBI at 90
As the RBI marks 90 years of its establishment, the central bank’s decision underscores its evolving role as a guardian of both growth and stability. The latest policy stance reaffirms its commitment to balancing inflation control with economic expansion – a delicate act, especially amid global financial flux and weather-related uncertainties.
Calibrated Optimism for FY 25–26
The RBI’s April policy decision reflects calibrated optimism. By trimming the repo rate and maintaining accommodative undertones, it has laid the groundwork for a more robust economic performance without stoking inflationary fires. As India navigates a shifting global economic order, a prudent yet growth-oriented monetary stance could be the anchor the economy needs to stay on course.
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