Namaskar and greetings to all in this month of Raksha Bandhan, Independence Day, Janmashtami, Parsi New Year and Ganesh Chaturthi. May this pious and auspicious month bring good luck to all of us and to our economy.

The monsoon season has been progressing well. We are also approaching the festival season, which typically brings greater enthusiasm and buoyancy in economic activity. This favourable domestic setting, together with supportive policies of the Government and the Reserve Bank, augurs well for the Indian economy in the near term, as geopolitical uncertainties have somewhat abated, even though global trade challenges continue to linger. Over the medium-term also, the Indian economy holds bright prospects in the changing world order drawing on its inherent strength, robust fundamentals, and comfortable buffers. Opportunities are there for the taking, and we are making all efforts to create enabling conditions through a multi-pronged yet cohesive approach to policymaking.

2. Globally, policy makers are faced with muted growth and slowing pace of disinflation, with some advanced economies even witnessing an uptick in inflation. As the dust settles and a new equilibrium emerges in the new global order, policymakers will have a tough task navigating a world characterised by modest growth, sticky inflation and elevated public debt levels.

3. At the Reserve Bank, leveraging on the room provided by a significant moderation in inflation, we have taken decisive and forward-looking measures to support growth. The coordinated use of various tools available to us has helped accelerate monetary policy transmission in the current easing cycle.

Decisions of the Monetary Policy Committee (MPC)

4. The Monetary Policy Committee (MPC) met on the 4^th, 5^th and 6^th of August to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.50 per cent; consequently, the standing deposit facility (SDF) rate shall remain unchanged at 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent. The MPC also decided to continue with the neutral stance.

5. The MPC noted that, while headline inflation is much lower than projected earlier, it is mainly due to volatile food prices, especially of vegetables. Core inflation, on the other hand, has remained steady around the 4 per cent mark, as anticipated. Inflation is projected to go up from the last quarter of this financial year. Growth is robust and as per earlier projections though below our aspirations. The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing. The impact of the 100 bps rate cut since February 2025 on the economy is still unfolding.

6. On balance, therefore, the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate of 5.5 per cent and wait for further transmission of the front-loaded rate cut to the credit markets and the broader economy. Accordingly, the MPC unanimously voted to keep the repo rate unchanged. The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path. Accordingly, all members decided to continue with the neutral stance.

Assessment of Growth and Inflation

Growth

7. Domestic growth is holding up and is broadly evolving along the lines of our assessment even though some high-frequency indicators showed mixed signals in May-June. Rural consumption remains resilient¹ while urban consumption revival, especially discretionary spending, is tepid². Fixed investment³ supported by buoyant government capex continues to support economic activity.

8. On the supply side, steady southwest monsoon⁴ is supporting kharif sowing,⁵ replenishing reservoir levels⁶ and boosting agriculture activity. Moreover, services activity remains steady, though some high-frequency indicators recorded a modest expansion.⁷ Services PMI⁸ increased to an 11-month high of 60.5 in July 2025. Construction activity continues to exhibit resilience.⁹ However, growth in the industrial sector remained subdued and uneven across segments, pulled down by electricity and mining.¹⁰ While the manufacturing Purchasing Managers’ Index (PMI)¹¹ remained elevated in Q1, the Index of Industrial Production (IIP)¹² showed moderation.

9. Turning to the growth outlook, the above normal southwest monsoon, lower inflation, rising capacity utilisation, and congenial financial conditions continue to support domestic economic activity. The supportive monetary, regulatory and fiscal policies including robust government capital expenditure,¹³ should also boost demand. With sustained growth in construction and trade segments, the services sector is expected to remain buoyant in the coming months. Prospects of external demand, however, remain uncertain amidst ongoing tariff announcements and trade negotiations. The headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook.  Taking all these factors into account, real GDP growth for 2025-26 is projected at 6.5 per cent, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent. Real GDP growth for Q1:2026-27 is projected at 6.6 per cent. The risks are evenly balanced.

Inflation

10. CPI headline inflation declined for the eighth consecutive month to a 77-month low of 2.1 per cent in June.¹⁴ This was driven primarily by a sharp decline in food inflation, led by improved agricultural activity and various supply side measures. Food inflation recorded its first negative print since February 2019 at (-) 0.2 per cent in June. Double-digit deflation in vegetables and pulses drove this contraction.¹⁵ High-frequency price indicators signal a continuation of the lower price momentum in food prices to July as well. Fuel group inflation moderated over two successive months to record 2.6 per cent in June.¹⁶ Core inflation,¹⁷ which remained within a narrow range of 4.1-4.2 per cent during February-May, increased to 4.4 per cent in June, partly driven by a continued increase in gold prices.

11. The inflation outlook for 2025-26 has become more benign than expected in June. Large favourable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of foodgrains¹⁸ have contributed to this moderation. CPI inflation, however, is likely to edge up above 4 per cent in Q4:2025-26 and beyond, as unfavourable base effects, and demand side factors from policy actions come into play. Barring any major negative shock to input prices, core inflation is likely to remain moderately above 4 per cent during the year. Weather-related shocks pose risks to inflation outlook. Considering all these factors, CPI inflation for 2025-26 is now projected at 3.1 per cent with Q2 at 2.1 per cent; Q3 at 3.1 per cent; and Q4 at 4.4 per cent. CPI inflation for Q1:2026-27 is projected at 4.9 per cent. The risks are evenly balanced.

External Sector

12. India’s current account deficit (CAD) moderated to 0.6 per cent of GDP in 2024-25 from 0.7 per cent of GDP in 2023-24 due to robust services exports and strong remittances receipts despite higher merchandise trade deficit. Merchandise trade deficit further widened in Q1 of 2025-26. India’s share in world services exports has risen markedly from about 2 per cent in 2005 to 4.3 per cent in 2024, driven by strong software and business services exports. Robust services exports¹⁹ coupled with strong remittance receipts are expected to keep CAD within the sustainable level during the current financial year.

13. On the external financing side, gross foreign direct investment (FDI) to India remained strong during April-May 2025-26. However, net FDI moderated during this period due to higher outward FDI.²⁰ Foreign portfolio investment (FPI) inflows to EMEs have remained strong in May and June 2025.²¹ However, net FPI to India recorded outflows of US$ 0.8 billion in 2025-26 so far (April-July 31) due to outflows in the debt segment.²² External commercial borrowings, on the other hand, witnessed higher net inflows compared to last year. Inflows under non-resident deposits too remained positive, albeit witnessing some moderation.²³ As on August 1, 2025, India’s foreign exchange reserves stood at US$ 688.9 billion, sufficient to cover more than 11 months of merchandise imports.²⁴ Overall, India’s external sector remains resilient.²⁵ We remain confident of meeting our external financing requirements comfortably.

Liquidity and Financial Market Conditions

14. System liquidity, as measured by the net position under the Liquidity Adjustment Facility (LAF), has been in surplus, on an average of ₹3.0 lakh crore per day since the last MPC, as compared to an average daily surplus of ₹1.6 lakh crore during the previous two months .²⁶ Going ahead, as the CRR cut announced in the last policy comes into effect in a staggered manner beginning September, it would further support liquidity conditions.

15. The comfortable liquidity in the banking system has reinforced transmission of the policy repo rate cuts to the money²⁷, bond²⁸ and credit markets during the current easing cycle. In the credit market, the weighted average lending rate (WALR) of scheduled commercial banks declined by 71 basis points for fresh rupee loans (of which 55 bps is due to interest rate reduction) and 39 basis points for outstanding rupee loans from February 2025 to June 2025. On the deposit side, the weighted average domestic term deposit rate (WADTDR) on fresh deposits moderated by 87 bps during the same period. Moreover, the transmission to lending rates has been broad based across sectors.

16. Going ahead, the Reserve Bank will continue to be nimble and flexible in its liquidity management. We will endeavour to maintain sufficient liquidity in the banking system so that the productive requirements of the economy are met and transmission to money markets and credit markets remains smooth.

17. An internal Working Group has reviewed the Reserve Bank’s extant Liquidity Management Framework (LMF), operative since February 2020. The Group has submitted its report and the same will be placed on the RBI website shortly for public consultation. The weighted average call rate (WACR) is found to be highly correlated with other overnight money market rates (TREPS and Market Repo) in the collateralised segments. Further, WACR is also found to be effective in transmitting signals to other money market instruments across maturities. Therefore, the Group has recommended continuation of overnight WACR as the operating target of monetary policy. The Group has, inter alia, also recommended to continue with the variable rate auction mechanism for repo and reverse repo operations of various tenors with the objective of maintaining the operating target rate at the policy rate.

Financial Stability

18. The system-level financial parameters related to capital adequacy, liquidity, asset quality and profitability of Scheduled Commercial Banks (SCBs) continue to remain healthy.²⁹ Credit Deposit Ratio (CD ratio) for the banking system at the end of June 2025 was 78.9 per cent, broadly similar to that an year ago. Similarly, the system-level parameters of NBFCs too are sound, with adequate capital position and improved GNPA ratios.³⁰

19. Bank credit grew at 12.1 per cent during 2024-25. While it is slower than the growth rate of 16.3 per cent in 2023-24, it is higher than the average growth rate of 10.3 per cent recorded in the ten-year period preceding 2024-25. Moreover, while the flow of non-food bank credit during the financial year 2024-25 reduced by about ₹3.4 lakh crore from ₹ 21.4 lakh crore to almost ₹18 lakh crore, the flow from non-bank sources more than made up for this decrease.³¹ Thus, even though growth rate of bank credit slowed last year, the overall flow of financial resources to the commercial sector increased from ₹33.9 lakh crore in 2023-24 to ₹34.8 lakh crore in 2024-25. This trend continues during the current financial year as well.³² As transmission to money markets has been faster, large corporates increasingly relied on market-based instruments such as commercial paper and corporate bonds to source funds, reducing their reliance on bank credit.³³ Also, as the profitability of large corporates has increased, their internal resources have become an important source for business expansion.

Additional Measures

20. Before I conclude, let me underline that for us at RBI, the interest and welfare of the citizens of India is foremost. It is the people of India, including those at the bottom of the pyramid, who are our raison detre, or the reason of our being. In this regard, I have three consumer-centric announcements to make.

21. One, as Jan-dhan Scheme completes 10 years, a large number of accounts have fallen due for re-KYC. The banks are organising camps at Panchayat level from 1^st July to 30^th September, in an endeavour to provide services at customer doorsteps. Apart from opening new bank accounts and re-KYC, the camps will focus on micro insurance and pension schemes for financial inclusion and customer grievance redress.

22. Two, we will be standardising the procedure for settlement of claims in respect of bank accounts, and articles kept in safe custody or safe deposit lockers of deceased bank customers. This is expected to make settlement more convenient and simpler.

23. Three, we are expanding the functionality in RBI Retail-Direct platform to enable retail investors to invest in treasury bills through systematic investment plans.

Concluding Remarks

24. I now make my concluding remarks. Despite a challenging external environment, the Indian economy is navigating a steady growth path with price stability. Monetary policy has appropriately used the policy space created by the benign inflation outlook to support growth without compromising on the primary objective of price stability. Transmission of our recent policy actions to the broader economy is underway.

25. As the Indian economy strives to attain its rightful place in the global economy, stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey. We, on our part, will continue to be agile and proactive in providing a facilitative monetary policy based on incoming data and the evolution of the growth-inflation dynamics. As always, we will have a clear, consistent and credible communication backed by actions necessary for the task at hand.

Thank you. Namaskar and Jai Hind.

(Puneet Pancholy)     
Chief General Manager

Press Release: 2025-2026/842