Key Takeaways
- The Reserve Bank of India (RBI) has maintained its key repo rate at 5.5%, aligning with market expectations, while affirming a neutral policy stance.
- India's real GDP is projected to grow by 6.5% for the full fiscal year 2025-26, with quarterly estimates of 6.5% in Q1 and 6.7% in Q2, indicating a robust economic trajectory.
- The central bank has revised its CPI inflation forecast for FY26 downwards to 3.1% from an earlier 3.7%, though core inflation is expected to remain slightly above 4%.
- A significant 100 basis points (bps) cut in the Cash Reserve Ratio (CRR) to 3% is set to inject approximately ₹2.5 lakh crore of primary liquidity into the banking system by December 2025.
- The external sector remains resilient, bolstered by strong gross foreign direct investment (FDI) inflows and robust services exports, which are expected to keep the Current Account Deficit (CAD) at sustainable levels.
The Reserve Bank of India (RBI) announced on Wednesday its decision to keep the policy repo rate unchanged at 5.5%, a move widely anticipated by economists and financial markets. This decision underscores the central bank's commitment to a neutral monetary policy stance, following a cumulative 100 basis points reduction in rates from February to June 2025. RBI Governor Sanjay Malhotra emphasized that the policy stance has appropriately leveraged space to aid economic growth.
Looking ahead, the RBI has maintained its real GDP growth projection for the current fiscal year (FY26) at 6.5%. Specific quarterly forecasts include 6.5% for Q1 FY26, 6.7% for Q2, and 6.6% for Q3, with Q1 FY27 also projected at 6.6%. The Governor noted that the risks to this growth outlook are evenly balanced, signaling confidence in the nation's economic stability despite global uncertainties.
On the inflation front, the RBI has revised its CPI inflation forecast for FY26 downwards to 3.1%, a notable reduction from the previous projection of 3.7%. While headline inflation is expected to remain benign, core inflation is anticipated to stay moderately above 4%, with a potential edge up in Q4 FY26 due to unfavorable base effects and demand-side factors. Governor Malhotra indicated that inflation is under control, stating the central bank has "won the war" against inflation, though the "war continues" in terms of maintaining price stability.
In a significant move to bolster liquidity, the RBI confirmed a 100 basis points reduction in the Cash Reserve Ratio (CRR), bringing it down from 4% to 3%. This reduction will be implemented in four equal tranches starting September 2025 and is expected to inject approximately ₹2.5 lakh crore (equivalent to ₹2.5 trillion) of primary liquidity into the banking system by November/December 2025. This measure aims to ease funding costs for banks and accelerate the transmission of monetary policy rate cuts to the broader credit market.
India's external sector continues to demonstrate resilience. Gross foreign direct investment (FDI) inflows remained strong, increasing by 14% to $81 billion in 2024-25. Despite a moderation in net FDI due to higher repatriation, the robust gross inflows highlight India's sustained appeal as an investment destination. Furthermore, strong services exports and remittance receipts are expected to keep the Current Account Deficit (CAD) at sustainable levels, reinforcing the economy's ability to meet external financing requirements without difficulty. The CAD had previously moderated to 0.7% of GDP in 2023-24. The RBI also pledged to keep a close watch on evolving data trends, affirming its commitment to remain agile and proactive in its policy actions.
In other financial news, Hong Kong's Cathay Pacific Airways ((/stock/293)) reported a 1% rise in its full-year profit to HK$9.89 billion (US$1.27 billion) for 2024. The airline's improved performance was primarily driven by higher passenger volumes and lower fuel costs, with revenue increasing by 10.5% to HK$104.37 billion.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.