RBI Governors Monetary Policy Statement for Q1 ending June, 2025.

The RBI’s 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 has reiterated unanimously:

• The Policy Repo Rate under the liquidity adjustment facility (LAF) unchanged at 5.50%; consequently, the standing deposit facility (SDF) rate shall remain unchanged at 5.25% and the marginal standing facility (MSF) rate and the Bank Rate at 5.75%. The MPC also decided to continue with the neutral stance.

• Taking all economic factors into account, real GDP growth for 2025-26 is projected at 6.5%, with Q1 at 6.5%; Q2 at 6.7%; Q3 at 6.6%, and Q4 at 6.3% %. Real GDP growth for Q1:2026-27 is projected at 6.6%. The risks are evenly balanced.

• CPI headline inflation declined for the eighth consecutive month to a 77-month low of 2.1% in June, while, Food inflation recorded its first negative print since February 2019 at (-) 0.2% in June. Fuel group inflation moderated over two successive months to record 2.6% in June. Core inflation, which remained within a narrow range of 4.1% – 4.2% during February-May, increased to 4.4% in June, partly driven by a continued increase in gold prices.

• CPI inflation for 2025-26 is now projected at 3.1% with Q2 at 2.1%; Q3 at 3.1%; and Q4 at 4.4%. CPI inflation for Q1:2026-27 is projected at 4.9%.

• India’s current account deficit (CAD) moderated to 0.6% of GDP in 2024-25 from 0.7% of GDP in 2023-24 due to robust services exports and strong remittances receipts despite higher merchandise trade deficit.

• 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.

• Credit Deposit Ratio (CD ratio) for the banking system at the end of June 2025 was 78.9%, broadly similar to that a year ago.

• Bank credit grew at 12.1% during 2024-25. While it is slower than the growth rate of 16.3% in 2023-24, it is higher than the average growth rate of 10.3% 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 Rs. 3.4 lakh crore from Rs. 21.4 lakh crore to almost Rs. 18 lakh crores, 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 Rs. 33.9 lakh crores in 2023-24 to Rs. 34.8 lakh crores in 2024-25.

1 Tractor sales and retail two-wheeler sales posted a growth of 9.2% and 4.9%, respectively, during Q1 of 2025-26.

2 As per the NielsenIQ’s Retail Audit Service, FMCG sales volume grew by 6.0% during Q1:2025-26, with rural and urban areas recording a growth of 8.4% and 4.3%, respectively. Retail sales of passenger vehicles grew by 3.0% during Q1 and domestic air passenger traffic expanded by 5.3% during this period.

3 Central government capital expenditure grew at a strong 52.0% (y-o-y) during Q1:2025 – 2026. Index of Industrial Production of capital goods expanded by 10.0% and import of capital goods increased by 12.6% in Q1:2025-26.

4 As of August 4, 2025, the cumulative south-west monsoon (SWM) rainfall is 4.00% above the long period average (LPA).

5 The area sown under kharif crops as on August 1, 2025, is 5.1% higher than the corresponding acreage of previous year.

6 As of July 31, 2025, reservoir levels were at 69% of the full capacity, well above last year’s level as well as decadal average of 46%.

7 E-way bills increased strongly by 19.3% in June 2025 and toll collections increased by 15.2% in June-July 2025. Growth of gross GST collections moderated to 6.9% in June-July 2025 after a 16.4% growth in May. Domestic air cargo posted a growth of 2.6% in June 2025; port cargo witnessed a growth of 5.6% in Q1:2025-26; sales of commercial vehicle contracted by 0.6% in Q1.

8 PMI services climbed up to 60.4% in June 2025 and further to 60.5% in July, from 58.8% in May.

9 Steel consumption grew by 7.9% in Q1:2025-26 and cement production posted a growth of 8.4% during this period.

10 Mining and electricity output contracted by 3.0% and 1.9%, respectively, during Q1:2025 – 2026.

11 Manufacturing PMI surged to a 16-month high of 59.1% in July 2025, signalling robust momentum in the manufacturing sector.

12 Manufacturing IIP recorded a modest growth of 3.4% during Q1:2025-26.

13 As per the Union Budget 2025-26, the central government’s effective capital expenditure (including grants-in-aid for creation of capital assets) is budgeted to grow by 17.4%.

14 CPI headline inflation declined to 2.1% in June 2025 (lowest since January 2019) from 3.2% in April, witnessing a cumulative fall of around 110 bps. The moderation was primarily driven by a further easing in vegetables, pulses, and cereals prices, which resulted in deflation in the CPI food group for the first time since February 2019, at (-)0.2% in June. Fuel group inflation also moderated to 2.6% in June from 2.9% in April. Core inflation, however, edged up to 4.4% in June 2025 after remaining broadly steady between 4.1% to 4.2% during February to May.

15 Vegetable prices declined by 19.0% while pulses prices declined by 11.8% in June 2025.

16 Fuel group inflation also moderated to 2.6% in June from 2.9 % in April.

17 CPI headline excluding food and fuel.

18 As on July 16, 2025, the stocks held by the Food Corporation of India for wheat stands at 1.3 times the buffer norms (stocks highest in last 4 years) and for rice, at 3.9 times the buffer norms.

19 As per provisional figures, India’s services exports grew by 10.1% during April-June 2025-26, while services imports increased by 1.5% during the same period. Net services exports grew by 20.7% during the same period.

20 Gross foreign direct investment (FDI) inflows grew by 5.00% to US$ 15.9 billion in April-May 2025-26 from US$ 15.2 billion during the same period a year ago. Net FDI inflows contracted by 2.2% to US$ 3.9 billion in April-May 2025-26 from US$ 4.0 billion a year ago.

21 Net portfolio inflows into EMEs during June 2025 stood at US$ 42.8 billion as compared with US$ 16.8 billion in May 2025 (Source: Institute of International Finance).

22 During April-July 2025, there were net inflows of US$ 2.6 billion in equity segment whereas debt segment witnessed a net outflow of US$ 3.5 billion.

23 Net inflows under external commercial borrowings to India increased to US$ 3.5 billion during April-June 2025-26 as compared with US$ 1.6 billion a year ago. Non-resident deposits recorded a net inflow of US$ 1.9 billion in April-May 2025-26, lower than US$ 2.8 billion in the same period last year.

24 Based on actual merchandise imports (on a BoP basis) during the four quarters period (Q1:2024-25 to Q4:2024-25) and around 94% of total external debt as on March end 2025.

25 India’s CAD/GDP ratio moderated to 0.6% in 2024-25 from 0.7% during 2023-24. India’s external debt to GDP ratio increased to 19.1% at end-March 2025 from 18.5% at end-March 2024. The net International Investment position to GDP ratio improved to (-) 8.7% from (-) 10.1% during the same period.

26 The average daily net absorption under the liquidity adjustment facility (LAF) during April and May stood at Rs.1.5 lakh crore and Rs.1.8 lakh crore, respectively. The average daily net absorption under the LAF further increased to Rs. 2.82 lakh crores in June 2025 and Rs. 3.12 lakh crores in July 2025. The daily average absorption under the SDF increased to Rs. 2.17 lakh crores during June – July from Rs. 2.06 lakh crores during April – May 2025.

27 In response to the cumulative policy repo rate cut of 100 basis points (bps) in the current easing cycle (up to August 4), the WACR moderated by 108 bps. Since the February policy, 3- month T-bill rate declined by 110 bps, 3-month CP issued by NBFCs by 161 bps and 3-month CD rate by 170 bps.

28 The 5-year and 10-year G-sec yield (6.79 GS benchmark) declined by 63 bps and 28 bps, respectively since the February policy. Over the same period, 5-year AAA corporate bond yields declined by 56 basis points. During this period, the Indian bond market was one of the best performers globally.

29 SCB Parameters: The outstanding credit and deposit on a y-o-y basis increased by 9.9% and 10.5%, respectively, between June-24 and June-25. The system-level Capital to Risk Weighted Assets Ratio (CRAR) of 17.44% in June 2025 was well above the regulatory minimum level. Ratio of non-performing loans improved further (GNPA ratio at 2.24% in June 2025 vis-à-vis 2.67% in June 2024, NNPA Ratio at 0.53% in June 2025 vis-à-vis 0.60% in June 2024). Liquidity buffers were robust, with an LCR of 132.80% as of end June 2025. The annualised return on assets (RoA) and return on equity (RoE) stood at 1.34% and 12.70%, respectively, in June 2025. Net Interest Margin was 3.24% for June 2025 (3.54% in June ‘24).

30 NBFC Parameters: Total CRAR of NBFCs was 25.78% and Tier I CRAR was 23.83% in June ‘25, well above the minimum regulatory requirements. GNPA ratio has improved from 2.47% in June 2024 to 2.21% in June 2025, while NNPA ratio also improved from 1.08% in June 2024 to 0.95% in June 2025. RoA for the sector decreased slightly from 3.23% in June 2024 to 3.11% in June 2025. NIM has slightly decreased from 4.82% in June 2024 to 4.40% in June 2025.

31 The total flow of resources from non-banks (including domestic and foreign sources) increased by Rs.4.3 lakh crores from Rs. 12.5 lakh crores in 2023-24 to Rs.16.8 lakh crores in 2024-25.

32 Bank Credit recorded a growth (y-o-y) of 9.8% as on July 11, 2025 as compared to 14.0% a year ago. Despite the slowdown in bank credit, the total flow of financial resources remained at almost similar levels during April-July 2025-26 as compared with the corresponding period of last year.

33 CP issuances by non-financial entities increased to 0.78 lakh crores in FY:2025-26 (up to June) compared to 0.30 lakh crores a year ago. Corporate bonds issued by non-financial entities increased to 0.95 lakh crores in FY:2025-26 (up to June) compared to 0.09 lakh crores a year ago.

Team Maverick