Monetary
Policy Statement, 2025-26 - Resolution of the Monetary Policy Committee December
3 to 5, 2025
The Reserve Bank of India’s Monetary Policy
Committee (MPC), chaired by Governor Sanjay Malhotra, held its 58th
meeting and assessed global and domestic economic and financial conditions.
Key
Policy Decisions
·
Repo Rate: Reduced by 25 basis points to
5.25%
·
Policy Stance: Neutral (majority
retained; one member preferred accommodative stance)
·
Other Rates Adjusted:
o
SDF: 5.00%
o
MSF / Bank Rate: 5.50%
The
decision was unanimous regarding the rate cut.
Economic
Outlook
Global
Economy
·
Performing better than expected, though uncertainty
remains elevated.
·
Trade normalization seen after earlier
frontloading.
·
Inflation remains above targets in major economies.
·
Financial markets remain volatile; US dollar
strengthened.
Domestic
Growth
·
India’s GDP grew 8.2% in Q2 2025–26 — the
highest in six quarters.
·
Supported by:
o
Robust demand
o
GST and income tax rationalisation
o
Lower crude oil prices
o
High government capital spending
o
Favourable monetary conditions
Activity indicators show continued momentum in Q3,
though a few signals of moderation have emerged.
·
Growth Forecasts:
o
FY 2025–26: 7.3%
o
Q3: 7.0%, Q4: 6.5%
o
FY 2026–27:
§ Q1: 6.7%
§ Q2: 6.8%
Risks to
growth are evenly balanced.
Inflation
Outlook
·
Headline inflation fell sharply in October 2025 to
an all-time low, led by food price corrections.
·
Core inflation is contained and, excluding gold
price spikes, stands at 2.6%.
·
Inflation Projections:
o
FY 2025–26: 2.0%
o
Q3: 0.6%, Q4: 2.9%
o
FY 2026–27:
§ Q1: 3.9%
§ Q2: 4.0%
Inflation is projected to remain near the target
of 4% in early 2026–27, with risks evenly balanced.
Policy
Rationale
The MPC
assessed:
·
Sharp and broad-based decline in inflation
·
Favourable food supply outlook
·
Anchored core inflation
·
Moderating but resilient growth
Given the improved inflation trajectory and available
policy space, the MPC opted to support growth by lowering the policy rate.
Next
Steps
·
Minutes release: December 19, 2025
·
Next MPC meeting: February
4–6, 2026
Monetary Policy
Decisions
The Monetary
Policy Committee (MPC) held its 58th meeting from December 3 to 5, 2025, under the
chairmanship of Sanjay Malhotra, Governor, Reserve Bank of India. The MPC members
Dr. Nagesh Kumar, Saugata Bhattacharya, Prof. Ram Singh, Dr. Poonam Gupta and Indranil
Bhattacharyya attended the meeting.
2. After a
detailed assessment of the evolving macroeconomic and financial developments and
the outlook, the MPC voted unanimously to reduce the policy repo rate under the
liquidity adjustment facility (LAF) to 5.25 per cent. Consequently, the standing
deposit facility (SDF) rate shall stand adjusted to 5.00 per cent and the marginal
standing facility (MSF) rate and the Bank Rate to 5.50 per cent. The MPC also decided
to continue with the neutral stance.
Growth and
Inflation Outlook
3. The global
economy is holding up better than expected, though the earlier frontloading of trade
is showing signs of normalising. Uncertainty has eased somewhat following the end
of the US government shutdown and progress on trade agreements, yet it remains elevated.
Global inflation dynamics remain uneven, with inflation trending above target in
most major advanced economies. The US dollar strengthened primarily on safe haven
demand while treasury yields remained range bound. Equity markets remain volatile,
driven by shifting views on the monetary policy outlook and concerns surrounding
stretched valuations in tech stocks.
4. In India,
real gross domestic product (GDP) registered a six-quarter high growth of 8.2 per
cent in Q2:2025-26, underpinned by resilient domestic demand amidst global trade
and policy uncertainties. On the supply side, real gross value added (GVA) expanded
by 8.1 per cent, aided by buoyant industrial and services sectors. Economic activity
during the first half of the financial year benefited from income tax and goods
and services tax (GST) rationalisation, softer crude oil prices, front-loading of
government capital expenditure, and facilitative monetary and financial conditions
supported by benign inflation.
5. High-frequency
indicators suggest that domestic economic activity is holding up in Q3, although
there are some emerging signs of weakness in a few leading indicators. GST rationalisation
and festival-related spending supported domestic demand during October-November.
Rural demand continues to be robust while urban demand is recovering steadily. Investment
activity remains healthy with private investment gaining steam on the back of expansion
in non-food bank credit and high capacity utilisation. Merchandise exports declined
sharply in October amid subdued external demand, accompanied by softer services
exports. On the supply side, agricultural growth is supported by healthy kharif
crop production, higher reservoir levels and better rabi crop sowing.
Manufacturing activity continues to improve, and the services sector is maintaining
a steady pace.
6. Looking
ahead, domestic factors such as healthy agricultural prospects, continued impact
of GST rationalisation, benign inflation, healthy balance sheets of corporates and
financial institutions and congenial monetary and financial conditions should continue
to support economic activity. Continuing reform initiatives would further facilitate
growth. On the external front, services exports are likely to remain strong, while
merchandise exports face some headwinds. External uncertainties continue to pose
downside risks to the outlook, while speedy conclusion of ongoing trade and investment
negotiations present upside potential. Taking all these factors into consideration,
real GDP growth for 2025-26 is projected at 7.3 per cent, with Q3 at 7.0 per cent;
and Q4 at 6.5 per cent. Real GDP growth for Q1:2026-27 is projected at 6.7 per cent
and Q2 at 6.8 per cent (Chart 1). The risks
are evenly balanced.
7. Headline
CPI inflation declined to an all time low in October 2025. The faster than anticipated
decline in inflation was led by correction in food prices, contrary to the usual
trend witnessed during the months of September-October. Core inflation (CPI headline
excluding food and fuel) remained largely contained in September-October, despite
continued price pressures exerted by precious metals. Excluding gold, core inflation
moderated to 2.6 per cent in October. Overall, the decline in inflation has become
more generalised.
8. Turning
to the inflation outlook, food supply prospects remain bright on the back of higher
kharif production, healthy rabi sowing, adequate reservoir levels
and conducive soil moisture. Barring some metals, international commodity prices
are likely to moderate going forward. Overall, inflation is likely to be softer
than what was projected in October, mainly on account of the fall in food prices.
Considering all these factors, CPI inflation for 2025-26 is now projected at 2.0
per cent with Q3 at 0.6 per cent; and Q4 at 2.9 per cent. CPI inflation for Q1:2026-27
and Q2 are projected at 3.9 per cent and 4.0 per cent, respectively (Chart 2). In fact,
the underlying inflation pressures are even lower as the impact of increase in price
of precious metals is about 50 basis points (bps). The risks are evenly balanced.
Rationale
for Monetary Policy Decisions
9. The MPC
noted that headline inflation has eased significantly and is likely to be softer
than the earlier projections, primarily on account of the exceptionally benign food
prices. Reflecting these favourable conditions, the projections for average headline
inflation in 2025-26 and Q1:2026-27 have been further revised downwards. Core inflation,
which had been rising steadily since Q1:2024-25, eased at the margin in Q2:2025-26
and is expected to remain anchored in the period ahead. Both headline and core inflation
are expected to be around the 4 per cent target during the first half of 2026-27.
The underlying inflation pressures are even lower as the impact of increase in price
of precious metals is about 50 bps. Growth, while remaining resilient, is expected
to soften somewhat.
10. Thus,
the growth-inflation balance, especially the benign inflation outlook on both headline
and core, continues to provide the policy space to support the growth momentum.
Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 bps
to 5.25 per cent. The MPC also decided to continue with the neutral stance. However,
Prof. Ram Singh was of the view that the stance be changed from neutral to accommodative.
11. The minutes
of the MPC’s meeting will be published on December 19, 2025.
12. The next
meeting of the MPC is scheduled during February 4 to 6, 2026.