RBI Policy and Inflation Outlook

 

RBI Policy and Inflation Outlook

📉 Inflation and Rate Cuts

• Retail inflation dropped to 2.1% in June, far below the 4% RBI target.

• April inflation was 3.16%, the lowest in 69 months.

• Despite this, RBI will not immediately cut rates based on current data.

• Future rate cuts will depend on the outlook for inflation and economic growth, not just present numbers.

• CPI inflation is projected to rise to 4.4% in Q4, but current trends may cause a downward revision.

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💸 Interest Rates and Credit Growth

• RBI has cut key policy rates by 1% in 2025.

• Bank lending rates dropped 0.50%, indicating full transmission of rate cuts.

• Rate cuts aim to boost credit growth without creating asset bubbles.

• FY25 credit growth stands at 12.1%, above the 10% decadal average.

• But FY26 growth is lower at ~9% so far.

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🧰 Tools and Regulatory Reforms

• RBI still has "ammunition" beyond rate cuts to support the economy (but did not specify).

• Cash Reserve Ratio (CRR) was cut to 3%, not just for liquidity but to reduce borrowing costs.

• During COVID, RBI only used 1% of CRR, so ample funds remain.

• RBI is consolidating its 8,000+ regulations into 33 master regulations.

• A new regulatory review cell will reassess rules every 5–7 years.

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🧾 Governance and Inclusion

• RBI aims to keep regulation simple, consultative, and effective.

• Weekly bank visits to 2.7 lakh panchayats are deepening financial inclusion and updating KYC records.

• RBI remains cautious about industrial houses owning banks, citing conflict of interest risks.

• As of now, voting rights are capped at 26%, but foreign ownership can go up to 100% in banks.

• The government is currently subsidising payments infrastructure, but in future, users or the state may bear costs.

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🏦 Key Quote

“Monetary policy works with a lag. We focus on the outlook for inflation and growth over the next 12 months while making rate decisions.” – Sanjay Malhotra, RBI Governor