State of the Economy
Economic activity in India remains strong amidst global challenges, with financial conditions supporting efficient interest rate transmission to the credit market, as noted by Reserve Bank of India officials in their monthly bulletin report.
Monetary Policy Adjustments
- The central bank's rate-setting panel reduced the policy repo rate by 100 basis points (bps) to 5.5% between February and June.
- A phased 100 bps cut in banks’ cash reserve ratio starting September 6, 2025, will release ₹2.5 trillion, lowering banks' fund costs and aiding monetary policy transmission.
- Weighted average lending rates on rupee loans fell by 6 bps and 17 bps for fresh and outstanding loans from February to April 2025.
- Deposit rates also moderated by 27 bps for fresh deposits and 1 bp for outstanding deposits.
Credit Growth and Global Economic Conditions
- Bank credit growth slowed to 9.9% as of May 30, 2025, down from 16.2% a year prior, due to weaker momentum and base effects.
- Non-bank credit sources like external commercial borrowing remained healthy despite a slowdown from March.
- Global economy faces uncertainties from trade policy issues and geopolitical tensions.
- Iran-Israel conflict added volatility to financial markets after a temporary tariff freeze and trade deals buoyed sentiments in May and June 2025.
Resilience of Indian Economy
- Despite global uncertainties, high-frequency indicators in May 2025 suggest robust industrial and services sector activity in India.
- Growth for 2024-25 reaffirmed at 6.5%, with a notable increase in Q4.
- Capacity utilization in manufacturing remains above average, with rural demand showing improvement.
- India leads in Purchasing Managers’ Index activity, with new export orders increasing.
Inflation and External Sector
- Headline inflation remains below the target for four consecutive months as of May.
- Core CPI, excluding food and fuel, shows signs of softening, indicating muted underlying inflationary pressures.
- India's foreign exchange reserves as of June 13, 2025, stand at $699 billion, covering over 11 months of imports and 97% of external debt by December 2024 end.