Today 7 Feb 2025, the RBI governor address following the Monetary Policy Committee (MPC) meeting held on the 5th, 6th, and 7th of this month, the Governor of the Reserve Bank of India (RBI) outlined the committee’s resolution, policy rate adjustments, and key regulatory measures. The MPC’s decisions are important to businesses, economists, academicians, and the general public, as they directly impact the country’s economic trajectory and financial stability.
Monetary Policy Committee Resolution
The MPC unanimously decided to reduce the policy rate by 25 basis points, bringing it down from 6.5% to 6.25%. This decision was made after a thorough assessment of the evolving macroeconomic and financial landscape. The standing deposit facility (SDF) rate will now stand at 6.0%, while the marginal standing facility (MSF) rate and the bank rate will remain at 6.5%. The MPC also resolved to maintain a neutral stance, focusing on aligning inflation with the target while supporting economic growth.
The rationale behind this decision lies in the declining inflation, supported by favorable food price outlooks and the continued transmission of past monetary policy actions. Inflation is expected to moderate further in 2025-26, gradually aligning with the target. However, the MPC remains cautious about global financial market volatility, geopolitical tensions, and adverse weather events, which pose risks to both growth and inflation.
Growth and Inflation Outlook
The RBI projects real GDP growth for the current financial year at 6.4%, following a robust 8.2% growth in the previous year. Economic activity is expected to improve, driven by upbeat agricultural prospects, a gradual recovery in manufacturing, and resilient services sector performance. Rural demand continues to rise, while urban consumption remains subdued. For the next financial year, real GDP growth is estimated at 6.7%, with risks evenly balanced.
On the inflation front, headline inflation, which had breached the upper tolerance band in October, has since moderated to 5.2% in December. Food inflation is expected to soften further due to good kharib production, easing vegetable prices, and favorable rabi crop prospects. Core inflation, however, is anticipated to rise moderately. CPI inflation for the current financial year is projected at 4.8%, with a further decline to 4.2% expected in 2025-26.
External Sector Resilience
India’s external sector remains robust, with the current account deficit moderating to 1.2% of GDP in Q2 of 2024-25. The country continues to be the largest recipient of remittances globally, with an estimated inflow of 19.1 billion in 2024. As of January 31st, 2025. India’s foreign exchange reserves stood at over
630 billion, providing an import cover of more than 10 months. The RBI reiterated its commitment to maintaining orderly and stable foreign exchange markets, focusing on smoothing excessive volatility without targeting any specific exchange rate level.
Liquidity and Financial Market Conditions
System liquidity, which was in surplus from July to November 2024, turned into a deficit in December and January due to advanced tax payments, capital outflows, and increased currency circulation. The RBI has urged banks to actively participate in the uncollateralized call money market to enhance its depth and vibrancy. The central bank remains committed to ensuring sufficient system liquidity and will take proactive measures to address evolving liquidity conditions.
Financial Stability and Regulatory Measures
The financial health of scheduled commercial banks remains strong, with a credit-deposit ratio of 80.8% as of January 2025. Bank liquidity buffers are adequate, and return on assets and equity remain robust. The RBI also emphasized the importance of financial literacy, particularly for women, and announced the annual Financial Literacy Week campaign, themed “Financial Literacy for Women’s Prosperity,” starting on February 24.
Key Announcements and Measures
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Digital Security: To combat rising cyber threats, the RBI will extend additional authentication measures to online international digital payments. The introduction of the “.bank.in” domain for Indian banks and “.fin.in” for the financial sector aims to prevent banking frauds.
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Interest Rate Derivatives: The RBI will introduce forward contracts in government securities to help long-term investors manage interest rate risks more effectively.
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Retail Access to Government Securities: Non-bank brokers registered with SEBI will now be allowed to trade on the NDS-OM platform, enhancing retail participation in government securities.
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Market Timing Review: A working group will be established to review the trading and settlement timings of RBI-regulated markets, with a report expected by April 30, 2025.
The RBI remains committed to fostering price stability, sustained economic growth, and financial stability. The MPC’s decision to reduce the policy rate reflects its confidence in the evolving macroeconomic environment while remaining vigilant to global and domestic risks. The central bank will continue to take timely, calibrated, and well-communicated measures to support the economy and ensure financial resilience.
With these measures, the RBI aims to navigate the challenges posed by global uncertainties and domestic economic dynamics, ensuring a stable and prosperous future for India’s economy.
