RBI Monetary Policy Highlights 2025: Income tax cut to not have major impact on inflation, says RBI Governor

NFBCs tend to benefit more when systemic liquidity improves and/or systemic rates go down.

The Reserve Bank of India reduced the key interest rate by 25 basis points on February 7. RBI had kept the repo rate (short-term lending rate) unchanged at 6.5% since February 2023.

The last time the RBI had reduced the rate was during the Covid times (May 2020) and thereafter, it was gradually raised to 6.5 per cent. Newly appointed Reserve Bank Governor Sanjay Malhotra chaired his first Monetary Policy Committee (MPC) meeting starting Wednesday.

Here are highlights from Sanjay Malhotra's speech:

* MPC voted unanimously to cut repo rate by 25 bps to 6.25%. MPC voted unanimously to maintain 'neutral' policy stance

*Average inflation lower since flexible inflation targeting adopted. Flexible inflation targeting framework served India well.

*CPI has mostly stayed aligned with the target

*To continue to improve macro outcomes in best interest of economy. To use flexible inflation targeting to make best macro decision

*Jul-Sept GDP growth forecast to 7.0% from 7.3%; Jan-Mar CPI inflation forecast to 4.4% from 4.5% earlier

*RBI sees Oct-Dec GDP growth at 6.5%

*Aim to smoothen excessive volatility in FX mkt; we don't target a certain level for rupee's exchange rate

*FX policy consistent over the years, will continue

*Bank liquidity buffers sufficient; banks' credit-deposit ratio at end Jan was 80.8%

*To extend two-factor authentication to international online payments

*To introduce 'bank.in' exclusive domain name; Banks to register for exclusive bank.in domain from April

*Assuming a normal monsoon next year, CPI inflation for FY26 is projected at 4.2% with Apr-Jun at 4.5%, Jul-Sept at 4.0%, Oct-Dec at 3.8%, and Jan-Mar at 4.2%. The risks are evenly balanced.

*FY26 GDP growth seen at 6.7%; cuts Apr-Jun GDP growth forecast to 6.7% from 6.9%; cuts Jul-Sept GDP growth forecast to 7.0% from 7.3%; sees Oct-Dec GDP growth at 6.5%; sees Jan-Mar FY26 GDP growth at 6.5%; MPC noted growth is expected to recover from Jul-Sept; MPC noted growth lower than FY24

Highlights from press conference:

*Endeavour of RBI is to provide as much liquidity as required

*Main objective is inflation, price stability; at present, time has come to be more supportive of growth

*We are always watchful, will be nimble on providing liquidity; can support growth as inflation has come down

*Plan to roll out revised LCR norms in a phased manner

*RBI will act against entities mis-selling loans

*Global uncertainty a higher worry than rupee fall; uncertainty is underlying cause for rupee to fall

*Takes two quarters for rate transmission to play out

*Budget focus on agri to help control inflation in medium term; Budget would have considered fruit, vegetable inflation

*Our view on crypto will not change based on other countries'

*Income tax cut to not have major impact on inflation