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In 2025, the Reserve Bank of India (RBI) has adopted a cautious yet steady monetary policy, distinguishing itself from the more aggressive actions of several global central banks. Since June 2025, it has maintained the repo rate at 5.5%, signalling a deliberate policy of restraint and close observation. This approach comes even as some economies continue tightening to curb inflation while others loosen rates to spur growth.

This steady stance reflects the RBI’s confidence in India’s strong macroeconomic fundamentals. With inflation moderating and growth remaining robust, the central bank has been able to focus on financial stability without undermining economic momentum.

Inflation and Fostering GDP Growth

Headline CPI inflation eased to 4.9% in October 2025, comfortably within the RBI’s target range of 2–6%. Stable fuel prices and improved supply conditions have also contributed to a decline in core inflation. Meanwhile, India’s real GDP expanded by 7.8% year-on-year in the second quarter of FY25, driven by manufacturing, services, and public infrastructure investment. The RBI’s core strategy has been to balance growth support while keeping inflation expectations anchored.

RBI’s Tactical Tools Beyond Interest Rates

Although the repo rate has remained unchanged, the RBI has actively deployed liquidity and regulatory tools to support monetary conditions and ease credit flow. To manage liquidity, it has relied on the Standing Deposit Facility and conducted Variable Rate Reverse Repo auctions to absorb surplus liquidity, particularly after the seasonal spike in cash circulation during the Christmas period. These actions have helped maintain short-term interest rates within the policy corridor and ensured orderly conditions in the money market.

On the regulatory side, the RBI has introduced targeted easing to stimulate credit and investment. Basel III norms for real estate and MSME lending have been relaxed, allowing banks to offer credit with lower capital buffers. To boost participation in India’s capital markets, exposure limits have been raised significantly: lending against shares has increased from ₹20 lakh to ₹1 crore, while IPO financing limits have been enhanced from ₹10 lakh to ₹25 lakh per person. Banks have also been permitted to finance mergers and acquisitions, encouraging corporate consolidation and investment.

A significant structural reform has been the shift to a risk-based deposit insurance premium system. Under this new framework, banks with stronger risk management will pay lower premiums, replacing the earlier flat-rate system, which now serves as the maximum premium. The objective is to incentivise improved risk management and reduce premium expenses for well-rated banks.

Market Impact

The RBI’s methodical approach has supported stability across financial markets. In the bond market, the 10-year government securities yield has remained stable, reflecting investor confidence in India’s prudent monetary and fiscal stance. With foreign exchange reserves exceeding $600 billion, the rupee has also traded within a narrow range. Equity markets, after a strong rally in October, have entered a corrective phase, with investor interest shifting toward defensive and capital-expenditure-driven sectors.

Data-Based Policy Inputs

To enhance the quality of monetary decision-making, the RBI launched three major surveys in November 2025. The Inflation Expectations Survey of Households provides insights into price expectations across 19 cities and helps the RBI gauge emerging inflationary pressures. The Urban Consumer Confidence Survey captures public sentiment on income, employment, and discretionary spending. The Manufacturing Outlook Survey assesses pricing strategies, capacity utilisation, and business expectations. These surveys collectively support the RBI in calibrating its forward guidance for the upcoming December Monetary Policy Committee meeting.

A Strategic Outlook for the Months Ahead

Looking ahead, the RBI is expected to maintain its cautious stance, with immediate rate cuts being unlikely. Several external and domestic factors will guide its decisions. Continued monetary tightening by the US Federal Reserve or the European Central Bank could trigger currency volatility and capital outflows. At the domestic level, volatility in food prices driven by weather events or supply disruptions could rekindle inflationary pressures.

Governor Sanjay Malhotra has emphasised the need for calibrated reforms to deepen financial inclusion, expand capital markets, and support innovation in fintech and digital lending. Strengthening the Unified Payments Interface ecosystem, improving cybersecurity in digital banking, and promoting green finance and ESG-linked lending frameworks remain central priorities.

Conclusion: Policy Precision

Amid global uncertainty, India has emerged as a stable and attractive economy, supported by the RBI’s measured and disciplined policy framework. By maintaining rate stability, actively managing liquidity, easing regulatory norms, and relying on robust data analysis, the central bank has navigated a complex macroeconomic landscape with prudence and clarity. Its balanced approach has bolstered investor confidence and reinforced India’s position as a resilient and promising global economy.