AA Edit | RBI Neutral Amid Uncertainty

The Reserve Bank of India-led Monetary Policy Committee’s decision to leave policy rate unchanged at 5.25 per cent came along the expected lines as it is prudent to retain firepower for the crisis day.

The Central bank expects GDP growth for 2025-26 to be at 7.4 per cent, driven by private consumption, fixed investment and the service sector. The revival of the manufacturing sector’s growth is visible even as construction and services remain resilient.

The RBI forecasts retail inflation based on the Consumer Price Index at 2.1 per cent for financial year 2025-26, which is below its inflation mandate of four per cent (with plus or minus two percentage points). Though the Central bank predicts a slight uptick in the inflation figure at around four per cent in the next fiscal, it will remain comfortable for the country.

Though the economy is expected to benefit from the India-EU Free Trade Agreement and proposed India-US trade deal, the Central bank remains cautious about the growth outlook as it has kept its monetary stance neutral, primarily because of global uncertainty.

While macroeconomic actions remain muted in the monetary statement, the central bank has taken steps to increase production and employment in the country by doubling collateral-free MSME loans from Rs 10 lakh to Rs 20 lakh. This move will help micro enterprises.

The RBI’s proposal to allow banks to lend to real estate infrastructure trusts (REITs) is expected to give a fillip to commercial real estate and, as a result, lead to employment generation. Relaxation in norms for branch expansion for select NBFCs too will create jobs.

The biggest highlight of the monetary policy is the RBI’s proposal to compensate customers, who lost their money in digital frauds, up to Rs 25,000. While it may give some relief to the victims of cyber frauds, it should not absolve RBI of its responsibility to make payment systems as far as possible fraud-proof.