RBI MPC Meeting 2025: Repo rate decreases by 25 bps; here's the full speech of Governor Sanjay Malhotra

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), chaired by Governor Sanjay Malhotra, chopped the repo complaint by 25 bps to 6.25 connected Friday, February 7, 2025.

"I would similar to notation present that the Reserve Bank's speech complaint argumentation has remained accordant implicit the years. Our stated nonsubjective is to support orderliness and stability, without compromising marketplace efficiency," the politician said. Here is the afloat connection of the RBI governor:

The Monetary Policy Committee (MPC) met connected 5th, 6th and 7th of this month. You are alert that the Governor’s Statement aft the MPC gathering contains not lone the solution of the MPC with respect to the argumentation complaint and stance but besides different announcements and measures, which person a bearing connected the monetary and regulatory policies. The MPC solution is of people of involvement to a ample fig of radical from assorted walks of life, arsenic it impacts the lives of virtually each citizens of the country. The solution besides provides the rationale and the thought process of the MPC, and is of relevance to businesses, economists, academicians and the concern world. Apart from these MPC related announcements, the Governor’s connection has go an important mean for the Reserve Bank to item its priorities connected which it would similar the regulated entities to absorption their energies on. It is an accidental to constituent retired areas of interest and challenges for the stakeholders to code their attraction to. It is an juncture for the Reserve Bank to articulate its views connected captious areas of interest. I volition proceed with this signifier of a elaborate statement.

2. Before I travel to the solution of the MPC, let maine a infinitesimal to bespeak connected the acquisition of flexible ostentation targeting (FIT) framework, introduced successful the twelvemonth 2016 and reviewed successful 2021. I judge that it has served the Indian system good implicit these years, including the challenging play since the pandemic. The mean ostentation has been little station the instauration of FIT. Moreover, CPI ostentation has mostly stayed aligned with the target, barring a fewer occasions of breaching the precocious tolerance set since its inception. We volition proceed to amended the macroeconomic outcomes successful the champion involvement of the system utilizing the flexibility embedded successful the model portion responding to the evolving growth-inflation dynamics. Moreover, we volition strive to further refine the gathering blocks of this model by making advances successful the usage of caller data, improving nowcasting and forecasting of cardinal macroeconomic variables and processing much robust models.

3. On the regulatory front, I would similar to mention, particularly successful the discourse of immoderate of the projected regulatory changes pertaining to liquidity sum ratio (LCR), expected recognition nonaccomplishment (ECL) model for provisioning by banks, and the prudential norms governing projects nether implementation, that we volition proceed to strengthen, rationalise and refine the prudential and conduct-related regulatory model successful the wide involvement of the economy. The involvement of the system demands fiscal stableness and user protection. Our mandate is to heighten some of them. At the aforesaid time, economical involvement besides warrants expanding efficiency, which excessively is our duty. We recognise that conscionable similar determination are nary escaped lunches, regularisation to heighten stableness and user extortion excessively is not devoid of costs. There are trade-offs betwixt stableness and efficiency. We volition support this trade-off successful caput portion formulating regulations. It volition beryllium our effort to onslaught the close balance, keeping successful presumption the benefits and costs of each and each regulation. I besides privation to reassure each stakeholders that we volition proceed the consultative process successful regulation-making. The suggestions of stakeholders are invaluable and we volition springiness superior information to them earlier taking immoderate large decision. We volition besides guarantee that the implementation of specified regulations is smooth; we volition springiness capable clip for modulation and wherever regulations person large implications, the implementation volition beryllium done successful a phased manner.

4. The planetary economical backdrop remains challenging. The planetary system is increasing beneath the humanities mean adjacent though precocious frequence indicators suggest resilience on with continued enlargement successful trade. Progress connected planetary disinflation is stalling, hindered by services terms inflation.

5. With receding expectations connected the size and gait of complaint cuts successful the US, the US dollar has strenthened and enslaved yields person hardened. Emerging Market Economies (EMEs) person witnessed ample superior outflows, starring to crisp depreciation of their currencies and tightening of fiscal conditions. Divergent trajectories of monetary argumentation crossed precocious economies, lingering geopolitical tensions and elevated commercialized and argumentation uncertainties person exacerbated fiscal marketplace volatility. Such an uncertain planetary situation has posed hard argumentation trade-offs for EMEs.

6. The Indian economy, though continuing to stay beardown and resilient, besides did not stay immune to these planetary headwinds, with the Indian Rupee coming nether depreciation unit successful the caller months. At the Reserve Bank, we person been employing each tools astatine our disposal to look the multi-pronged challenges.

Decisions of the Monetary Policy Committee (MPC)

7. In this backdrop, the MPC, aft a elaborate appraisal of the evolving macroeconomic and fiscal developments and the economical outlook, decided unanimously to trim the argumentation repo complaint by 25 ground points from 6.50 per cent to 6.25 per cent. Consequently, the lasting deposit installation (SDF) complaint shall beryllium 6.00 per cent and the marginal lasting installation (MSF) complaint and the Bank Rate shall beryllium 6.50 per cent. The MPC besides decided unanimously to proceed with the neutral stance and stay unambiguously focussed connected a durable alignment of ostentation with the target, portion supporting growth.

8. I shall authorities the rationale for the determination successful brief. The MPC noted that ostentation has declined. Supported by a favourable outlook connected nutrient and continuing transmission of past monetary argumentation actions, it is expected to further mean successful 2025-26, gradually aligning with the target. The MPC besides noted that though maturation is expected to retrieve from the debased of Q2 of 2024-25, it is overmuch beneath that of past year. These growth-inflation dynamics unfastened up argumentation abstraction for the MPC to enactment growth, portion remaining focussed connected aligning ostentation with the target. Accordingly, the MPC decided to trim the argumentation repo complaint by 25 ground points to 6.25 per cent. At the aforesaid time, excessive volatility successful planetary fiscal markets and continued uncertainties astir planetary commercialized policies coupled with adverse upwind events airs risks to the maturation and ostentation outlook. This calls for the MPC to stay watchful. Accordingly, it decided to proceed with a neutral stance. This volition supply MPC the flexibility to respond to the evolving macroeconomic environment.

Assessment of Growth and Inflation

Growth

10. As per the archetypal beforehand estimates, existent GDP maturation for the existent twelvemonth is estimated astatine 6.4 per cent, a softer enlargement aft a robust 8.2 per cent maturation past year. Going forward, economical enactment is expected to amended successful the coming year. Agricultural enactment remains upbeat connected the backmost of steadfast reservoir levels6 and agleam rabi prospects. Manufacturing enactment is expected to retrieve gradually successful the 2nd fractional of this twelvemonth and beyond. Early firm results for Q3 bespeak a mild betterment successful the manufacturing sector. Mining and energy are rebounding from monsoon related disruptions successful Q2. Business expectations stay upbeat, arsenic evidenced from the PMI manufacturing aboriginal output index. Services assemblage enactment continues to beryllium resilient. PMI services, however, declined from its caller peak.

11. On the request side, agrarian request continues to beryllium connected an uptrend, portion municipality depletion remains subdued with precocious frequence indicators providing mixed signals. Going forward, improving employment conditions, taxation alleviation successful the Union Budget, and moderating inflation, unneurotic with steadfast cultivation enactment bode good for household consumption. Government depletion expenditure is expected to stay modest. Higher capableness utilisation levels, robust concern expectations and authorities argumentation enactment augur good for maturation successful fixed investment. Continued buoyancy successful services exports volition enactment growth. Global headwinds, however, proceed to impart uncertainty to the outlook and airs downward risks. Taking each these factors into consideration, existent GDP maturation for the adjacent twelvemonth is projected astatine 6.7 per cent with Q1 astatine 6.7 per cent; Q2 astatine 7.0 per cent; Q3 astatine 6.5 per cent; and Q4 astatine 6.5 per cent. The risks are evenly balanced.

Inflation

12. Headline inflation, aft moving supra the precocious tolerance set successful October, has since registered a sequential moderation successful November and December. Going ahead, nutrient ostentation pressures, absent immoderate proviso broadside shocks, should spot a important softening owed to bully kharif production, winter-easing successful rootlike prices and favourable rabi harvest prospects. Core ostentation is expected to emergence but stay moderate. Rising uncertainty successful planetary fiscal markets coupled with continuing volatility successful vigor prices and adverse upwind events presents upside risks to the ostentation trajectory. Taking each these factors into consideration, CPI ostentation for the existent fiscal twelvemonth is projected astatine 4.8 per cent with Q4 astatine 4.4 per cent. Assuming a mean monsoon, CPI ostentation for the fiscal twelvemonth 2025-26 is projected astatine 4.2 per cent with Q1 astatine 4.5 per cent; Q2 astatine 4.0 per cent; Q3 astatine 3.8 per cent; and Q4 astatine 4.2 per cent. The risks are evenly balanced.

External Sector

13. Coming to the outer sector, India’s existent relationship shortage (CAD) moderated from 1.3 per cent of GDP successful Q2 of past twelvemonth to 1.2 per cent successful Q2 of this year. According to the World Bank, India, with an estimated inflow of 129.1 cardinal US
dollars, continues to stay the largest recipient of remittances globally successful 2024. The CAD for this twelvemonth is expected to stay good wrong the sustainable level. As connected 31st January this year, India’s overseas speech reserves stood astatine 630.6 cardinal US dollars, providing an import screen of implicit 10 months. Overall, India’s outer assemblage remains resilient arsenic cardinal indicators enactment robust.

14. I would similar to notation present that the Reserve Bank’s speech complaint argumentation has remained accordant implicit the years. Our stated nonsubjective is to support orderliness and stability, without compromising marketplace efficiency. Accordingly, our
interventions successful the forex marketplace absorption connected smoothening excessive and disruptive volatility alternatively than targeting immoderate circumstantial speech complaint level oregon band. The speech complaint of the Indian Rupee is determined by marketplace forces.

Liquidity and Financial Market Conditions

15. After remaining successful surplus from July to November 2024, strategy liquidity – arsenic measured by the mean nett presumption nether the liquidity accommodation installation (LAF) – turned into shortage during December 2024 and January 2025. The drainage of liquidity is chiefly attributed to beforehand taxation payments successful December 2024, superior outflows, forex operations and a important pickup successful currency successful circulation successful January this year.

16. It has been observed that immoderate banks are reluctant to onlend successful the uncollateratised telephone wealth market; instead, they are passively parking funds with the Reserve Bank. We impulse the banks to actively commercialized among themselves successful the uncollateratised telephone wealth marketplace to marque it deeper and vibrant for amended awesome extraction from the weighted mean telephone wealth complaint (WACR).

17. The Reserve Bank is committed to supply capable strategy liquidity. We person taken a fig of steps successful this regard. We volition proceed to show the evolving liquidity and fiscal marketplace conditions and proactively instrumentality due measures to guarantee orderly liquidity conditions.

Financial Stability

18. The system-level fiscal parameters for Scheduled Commercial Banks (SCBs) proceed to beryllium healthy. The Credit Deposit Ratio (CD ratio) for the banking strategy astatine the extremity of January 2025 was astatine 80.8 per cent, broadly akin to that connected 30th September, 2024. Bank liquidity buffers are sufficient. Though the nett involvement borderline (NIM) moderated, instrumentality connected assets (RoA) and instrumentality connected equity (RoE) are robust. The system-level parameters for NBFCs excessively are healthy.

19. The Reserve Bank has been observing Financial Literacy Week annually since 2016 to heighten fiscal education. Last year, the run focused connected empowering young adults. This year, recognising the captious and multifaceted relation of women successful society, the run volition emphasise connected women's relation successful fiscal decision-making and household budgeting. I impulse each banks to actively enactment successful the run connected the taxable "Financial Literacy: Women’s Prosperity", starting from 24th of this month.

Additional Measures

20. I shall present denote definite further measures. Necessary directions and circulars for their implementation shall beryllium issued separately.

Digital security

21. First, the accelerated digitalisation of fiscal services has brought convenience and ratio but has besides accrued vulnerability to cyber threats and integer risks, which are getting blase time by day. The surge successful integer frauds is simply a substance of concern, warranting enactment by each stakeholders.

22. The Reserve Bank has been taking assorted measures to heighten integer information successful the banking and payments system. Introduction of Additional Factor of Authentication (AFA) for home integer payments is 1 specified measure. It is projected to widen AFA to online planetary integer payments made to offshore merchants, who are enabled for specified authentication.

23. Second, the Reserve Bank shall instrumentality the 'bank.in' exclusive Internet Domain for Indian banks. Registration of this domain sanction volition commence from April this year. This volition assistance debar banking frauds. This volition beryllium followed by the ‘fin.in’ domain for the fiscal sector.

24. Banks and NBFCs indispensable continuously amended preventive and detective controls to mitigate cyber risks. They indispensable make robust incidental effect and betterment mechanisms, reinforced done periodic testing, for operational resilience.

Digital security

21. First, the accelerated digitalisation of fiscal services has brought convenience and ratio but has besides accrued vulnerability to cyber threats and integer risks, which are getting blase time by day. The surge successful integer frauds is simply a substance of concern, warranting enactment by each stakeholders.

22. The Reserve Bank has been taking assorted measures to heighten integer information successful the banking and payments system. Introduction of Additional Factor of Authentication (AFA) for home integer payments is 1 specified measure. It is projected to widen AFA to online planetary integer payments made to offshore merchants, who are enabled for specified authentication.

23. Second, the Reserve Bank shall instrumentality the 'bank.in' exclusive Internet Domain for Indian banks. Registration of this domain sanction volition commence from April this year. This volition assistance debar banking frauds. This volition beryllium followed by the ‘fin.in’ domain for the fiscal sector.

24. Banks and NBFCs indispensable continuously amended preventive and detective controls to mitigate cyber risks. They indispensable make robust incidental effect and betterment mechanisms, reinforced done periodic testing, for operational resilience.

Access of SEBI-registered non-bank brokers to NDS-OM

26. Fourth, to heighten entree of retail investors to authorities securities, the Reserve Bank shall grow the entree of NDS-OM, the physics trading level for secondary marketplace transactions successful authorities securities, to non-bank brokers registered with SEBI.

Review of trading and colony timings crossed assorted marketplace segments

27. Fifth, successful presumption of the assorted developments successful fiscal markets and marketplace infrastructure implicit the past fewer years, we shall acceptable up a moving radical with practice from assorted stakeholders to undertake a broad reappraisal of trading and colony timing of markets regulated by the Reserve Bank. The Group shall taxable its study by 30th April of this year.

Concluding Remarks

28. To conclude, considering the existing growth-inflation dynamics, the MPC, portion continuing with the neutral stance, felt that a little restrictive monetary argumentation is much due astatine the existent juncture. The MPC volition instrumentality a determination successful each of its aboriginal meetings based connected a caller appraisal of the macroeconomic outlook.

29. We are committed to behaviour monetary argumentation and instrumentality specified measures, arsenic appropriate, which are timely, cautiously calibrated and intelligibly communicated, to facilitate conducive macroeconomic conditions that reenforce terms stability, sustained economical maturation and fiscal stability.

Thank you. Namaskar and Jai Hind.