RBI Monetary Policy 2025
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) maintained the key interest rate at 5.5% and kept the policy stance 'neutral'. This decision aligns with previous reductions of 100 basis points in 2025, yet further cuts are not off the table as economic developments have opened space for growth-supporting policies.
Economic Outlook
- Headline retail inflation is projected to average 2.6% in 2025-26, below the RBI's medium-term target of 4%.
- The RBI aims to support growth through structural measures rather than solely relying on rate cuts.
Banking Sector Adjustments
- Banks will be allowed to finance acquisitions by Indian companies, broadening the scope of capital market lending.
- A decade-old framework limiting loans over Rs 10,000 crore will be withdrawn, with risks managed through macroprudential tools.
- Non-bank infrastructure financing should become cheaper as the RBI plans to reduce 'risk weights' for loans to operational and high-quality projects.
- New licenses for urban co-operative banks will be issued, starting with a discussion paper.
- Banks can now provide rupee loans to non-residents from Bhutan, Nepal, and Sri Lanka for cross-border trade.
Lending and Credit Growth
- Bank loans increased by 10% year-on-year as of August 22, down from 13.6% the previous year.
- RBI economists noted that while bank credit flow to the commercial sector cooled in 2024-25, non-bank credit offset this moderation.
Governor's Perspective
Governor Malhotra emphasized the importance of adapting regulations to changing circumstances, noting that stability in price and financial systems is paramount. The RBI seeks to support economic activity through structural measures rather than temporary interest rate reductions.
