Introduction to India’s Monetary Policy
The Reserve Bank of India’s Monetary Policy Committee (MPC) is set to announce its new monetary policy on August 6, 2025. This announcement comes after a significant rate cut of 50 basis points in June 2025. The central bank has slashed the repo rate three times this year due to global uncertainties surrounding tariffs, protectionism, and trade wars, which are affecting global trade and growth outlook.
Recent Rate Cuts and Their Impact
The MPC started its deliberations on the bi-monthly monetary policy on August 4, 2025. Since the February 2025 MPC meeting, the RBI has been supporting growth by cutting policy rates. The repo rate has been cut by 50 basis points in two installments, along with a massive liquidity expansion. According to MPC member Nagesh Kumar, these measures aim to stimulate economic growth amidst global challenges.
Key Highlights from the June MPC Meeting
The June MPC meeting saw several key decisions:
- The Repo Rate was reduced to 5.5%.
- The Standing Deposit Facility (SDF) rate was set at 5.25%.
- The Marginal Standing Facility (MSF) and Bank Rate were decreased to 5.75%.
- The Cash Reserve Ratio (CRR) was reduced to 3%.
- The RBI changed its policy stance from ‘accommodative’ to ‘neutral’.
RBI Governor Sanjay Malhotra emphasized the importance of considering both current macroeconomic conditions and the outlook for policy calculus when determining the stance for monetary policy.
Growth Outlook for India
In June, India’s GDP growth for 2025-26 was projected at 6.5%, consistent with the previous forecast. The quarter-wise forecasts were as follows:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
Inflation Trends
The central bank’s inflation announcements included:
- Headline CPI inflation decreased from 4% in February 2025 to 3.7% in April 2025.
- Food inflation has declined.
- Fuel inflation remained in deflation.
The quarterly inflation forecasts were:
- Q1: 2.90%
- Q2: 3.40%
- Q3: 3.9%
- Q4: 4.4%
The RBI noted that the outlook for food inflation is positive due to a record wheat harvest and strong pulse and kharif arrivals. Core inflation was largely stable and contained, with inflation expectations showing a moderating trend.
Conclusion
The upcoming monetary policy announcement by the Reserve Bank of India’s Monetary Policy Committee is crucial, given the global economic uncertainties and India’s economic growth and inflation trends. The previous rate cuts and changes in policy stance are aimed at supporting economic growth while managing inflation. The future policy decisions will depend on the evolving macroeconomic conditions and the outlook for the Indian economy. As the global economic landscape continues to evolve, the RBI’s decisions will play a significant role in navigating India’s economic path forward.
