Noting that since the October Policy, the Indian economy has witnessed rapid disinflation, Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday (December 5, 2025) announced that the Monetary Policy Committee (MPC) has voted unanimously to cut repo rate by 25 basis points to 5.25%.

The MPC also decided to continue with the neutral stance.

“For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7% in Q2:2025-26, breached the lower tolerance threshold (2%) of the inflation target (4%). It dipped further to a mere 0.3% in October 2025. On the other hand, real GDP growth accelerated to 8.2% in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the goods and services tax (GST) rates,” Mr. Malhotra said in his address.

Inflation at a benign 2.2% and growth at 8%, for the first half of this year presents a rare goldilocks period, Mr. Malhotra added. While stating that globally, contrary to earlier expectations, growth has been relatively strong, he said that evolving geopolitical and trade environments, however, continue to weigh on the outlook. “Inflation paths remain divergent with headline inflation remaining above target in most advanced economies, while pressures in most emerging markets are contained, providing room for accommodative monetary policy.”

The Governor noted that conflicting pulls and pressures from AI-fuelled optimism and concerns over high valuations are playing out in global equity markets, while divergence in the monetary policy trajectory of central banks is adding to the uncertainty on capital flows and yield spreads.

Taking various factors into account, real GDP for 2025-26 is projected at 7.3% which is 0.5% more than the earlier projection. CPI inflation for 2025-26 is now projected at 2% which is 0.6% downwards from the earlier projection, the Governor said.

Apart from cutting the repo rate, the RBI in view of the evolving liquidity conditions and the outlook, has decided to conduct OMO purchases of government securities of ₹1,00,000 crore and a 3-year USD/INR Buy Sell swap of $5 billion this month to inject durable liquidity into the system.

Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February and April, and 50 basis points in June amidst easing retail inflation.

The retail inflation is trending below 4% since February this year. It eased to historic low in October, aided by an easing of food prices and favourable base effect.

(With PTI inputs)

The Reserve Bank on Wednesday (October 1, 2025) announced a host of measures to help exporters tide over challenges posed by the imposition of 50 per cent tariffs by the U.S. administration on Indian shipments.

The measures include reduced paperwork and compliance burden for small exporters and importers.

RBI MPC meeting updates on October 1, 2025

“The export sector is a vital part of India’s economy,” said RBI Governor Sanjay Malhotra, while announcing steps to further strengthen the sector and enhance ease of doing business for traders.

One of the key measures is the extension of the time period for repatriation from foreign currency accounts of Indian exporters in IFSC, from one month to three months.

In January 2025, the RBI had permitted Indian exporters to open foreign currency accounts with a bank outside India for the realisation of export proceeds.

Funds in these accounts can be used for making import payments or have to be repatriated by the end of next month from the date of receipt of the funds.

“It has now been decided to extend the time period for repatriation, from one month to three months, in case of such foreign currency accounts maintained in IFSC in India,” the RBI said, adding this will encourage Indian exporters to open accounts with IFSC Banking Units and also increase forex liquidity in IFSC.

The amendments to regulations will be notified shortly.

The RBI also increased the period for forex outlay for Merchandise Trade transactions from four months to six months, a move expected to help Indian merchants overcome the challenges they face in completing their business transactions efficiently while maintaining profitability.

“In terms of extant guidelines on MTT, outlay of foreign exchange is allowed up to four months. It has now been decided to increase the period for the forex outlay from four months to six months, in case of MTT,” it said.

Further, with a view to ease compliance for exporters/importers, especially of small-value goods and services, the RBI has decided to simplify the process of reconciliation in the Export Data Processing and Monitoring System (EDPMS) and Import Data Processing and Monitoring System (IDPMS).

As per the revised guidelines, bills can be reconciled and closed by a bank in EDPMS or IDPMS, based on a declaration by the concerned exporter or importer that the amount has been realised in EDPMS/IDPMS of a value equivalent to Rs 10 lakh per bill, or less.

“The revised procedure will also enable a reduction in the realisable value of bills by AD banks based on such a declaration. This measure is expected to reduce compliance burden on small value exporters and importers and enhance ease of doing business,” RBI said.

Governor Malhotra also announced plans to rationalise FEMA regulations regarding non-residents establishing their business presence in India.

Also, key provisions relating to eligible borrowers, recognised lenders, limits on borrowing, cost of borrowing, end-use and reporting, in the External Commercial Borrowing regulations, issued under FEMA, are proposed to be rationalised.

In a bid to promote the use of domestic currency for cross-border settlements, the Reserve Bank on Wednesday (October 1, 2025) announced a slew of measures, including allowing banks to lend in Indian Rupees to non-residents from Bhutan, Nepal and Sri Lanka for bilateral trade.

Observing that India has been making steady progress in the use of the Indian Rupee for international trade, RBI Governor Sanjay Malhotra said permission has been granted to Authorised Dealer banks to lend in Indian Rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross-border trade transactions.

RBI MPC meeting updates on October 1, 2025

Besides, he proposed to establish transparent reference rates for currencies of India’s major trading partners to facilitate INR-based transactions.

RBI has permitted wider use of Special Rupee Vostro Account (SRVA) balances by making them eligible for investment in corporate bonds and commercial papers.

SRVA is an account opened by a foreign bank with an Indian bank to facilitate international trade settlements directly in Indian Rupees (INR). These measures will help reduce dependence on the US dollar and thus shield the economy from sudden exchange rate fluctuations and currency crises.

These steps will help reduce pressure on forex and keep the current account deficit at a comfortable level.

India’s current account deficit moderated to $2.4 billion (0.2% of GDP) in Q1:2025-26 as compared with $8.6 billion (0.9% of GDP) in Q1:2024-25 due to increased net services surplus and strong remittance receipts despite a higher merchandise trade deficit, Malhotra said while announcing the fourth monetary policy review.

“During July-August 2025, the merchandise trade deficit continued to remain elevated. Notwithstanding rising global trade uncertainties, India’s services exports, driven by software and business services, witnessed robust growth in July-August 2025,” he said.

Furthermore, he said, robust services exports coupled with strong remittance receipts are expected to keep the current account deficit (CAD) sustainable during 2025-26.

As on September 26, 2025, India’s foreign exchange reserves stood at $700.2 billion, sufficient to cover more than 11 months of merchandise imports.

Overall, India’s external sector continues to be resilient, and RBI remains confident of meeting external obligations comfortably, he said.

“Notwithstanding the robust domestic macroeconomic fundamentals, the INR has witnessed some depreciation accompanied by phases of volatility. RBI is keeping a close watch on movements of the INR and will take appropriate steps, as warranted,” he said.

The Reserve Bank of India (RBI) on Wednesday (October 1, 2025) Monetary Policy Committee maintaining a neutral kept its policy interest rate unchanged at 5.5% for the second consecutive time, citing concerns over tariff uncertainties.

Announcing the fourth bi-monthly monetary policy of the current fiscal, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously decided to keep the short-term lending rate or repo rate unchanged at 5.5% with a neutral stance.

RBI MPC meeting updates on October 1, 2025

The Real GDP Growth for FY26 was projected at 6.8%. This has been revised upwards from earlier projection of 6.5%. Meanwhile, CPI inflation for FY26 has been projected at 2.6%.

While GST rate rationalisation will have a sobering impact on consumption and growth, tariff related developments may slow down the economic expansion in the second half of the current fiscal, the Governor said.

Since February 2025, the RBI has reduced the policy rate by 100 basis points. In its previous policy review in June, it had trimmed the repo rate by 50 basis points to 5.5%.

The central bank has been tasked by the government to ensure that Consumer Price Index (CPI) based retail inflation remains at 4% with a margin of 2% on either side.

Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February and April, and 50 basis points in June amidst easing retail inflation.

The retail inflation is trending below 4% since February this year. It eased to a six-year low of 2.07% in August, aided by an easing of food prices and favourable base effect.

With PTI inputs

India private sector activity expanded at the fastest pace on record in August, fuelled by a robust surge in demand led by the dominant services sector, which allowed firms to hike prices at the fastest clip in over 12 years, a survey showed on Thursday (August 21, 2025).

The latest results stand in contrast to expectations for a slowdown in economic growth in Asia’s third-largest economy to average 6.4% this fiscal year after an unexpectedly strong 7.4% expansion during the first three months of 2025.

HSBC’s flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 65.2 in August from 61.1, confounding expectations in a Reuters poll for a decline to 60.5.

It was the highest reading since the survey began in December 2005 and remained above the 50-mark that separates growth from contraction for the 49th month.

Record expansion was underpinned by the sharpest uptick in total new orders — a key gauge of demand — in nearly 18 years.

The services sector led growth, with its activity index soaring to a survey high of 65.6. The manufacturing sector also showed significant strength — its preliminary PMI rose to 59.8, its highest reading since January 2008.

While that boosted job creation, the survey also showed companies passing on increases in input costs to customers. The output price index increased to an over 12-year high of 55.8 from 53.5 in July.

That also contradicts the recent trend of easing inflation in official data, which dropped to an eight-year low of 1.55% last month.

The Reserve Bank of India, which targets inflation in a 2-6% range, started cutting interest rates early this year to stimulate the economy and paused at the latest meeting but is expected to cut again next quarter.

Firms remained optimistic, with sentiment for the year ahead strengthening to its highest since March.