RBI in 2025: From Guarded Easing to Confident Growth Support

The year 2025 marked a significant turning point in India’s monetary policy. The Reserve Bank of India (RBI) transitioned from a phase of cautious easing to one of active growth support, guided by a sharp and unexpected fall in inflation and evolving growth concerns.

Under the leadership of Governor Sanjay Malhotra, the RBI demonstrated policy flexibility, carefully balancing price stability and economic growth in an uncertain global environment. Over the course of the year, the RBI not only recalibrated interest rates but also frequently adjusted its policy stance, making 2025 one of the most dynamic monetary policy years in recent times.

February 2025: A Guarded Beginning to the Easing Cycle

The first Monetary Policy Committee (MPC) meeting of 2025, held in February, marked the start of the easing cycle. This was also the first policy meeting under Governor Sanjay Malhotra.

• Repo rate cut: 25 basis points (bps)
• Policy stance: Neutral
• Reason: Declining inflation and expectations of further moderation

Although inflation was moving closer to the 4% target, the RBI remained cautious. Growth had weakened significantly compared to the previous year, particularly after a low point in Q2 of FY 2024–25. At the same time, global financial volatility, geopolitical tensions, and trade policy uncertainty discouraged aggressive easing.

Key takeaway: The RBI opened policy space carefully, signalling that rate cuts would be calibrated, not rushed.

April 2025: Shift Towards Growth Support

By April, the macroeconomic picture had changed meaningfully.

• Inflation had fallen below the target
• RBI acknowledged a decisive improvement in the inflation outlook
• Growth remained underwhelming

This combination prompted a major policy shift:

• Repo rate cut: 25 bps
• Stance change: From Neutral to Accommodative

While the rate cut itself was modest, the change in stance carried greater significance. It clearly indicated that the RBI was now biased towards supporting growth, with inflation risks receding.

Key takeaway: April marked the RBI’s first clear signal of growth prioritisation.

June 2025: Frontloading the Easing Cycle

The June MPC meeting was the most dramatic and decisive of the year.

Inflation Dynamics

• Headline inflation had fallen sharply from 6.2% in October 2024
• Food inflation moderated significantly, especially vegetable prices
• RBI assessed that inflation could undershoot the target

Growth Concerns

• Growth was described as lower than aspirations
• Global uncertainty continued to weigh on economic momentum

Policy Action

• Repo rate cut: 50 bps (jumbo cut)
• Cumulative rate cut since February: 100 bps
• Repo rate reduced from: 6.50% to 5.50%

Markets were largely expecting only a 25 bps cut, making this move a major surprise. The RBI justified the action by stating that the changed growth–inflation dynamics required frontloaded easing.

Key takeaway: June reflected the RBI’s willingness to act boldly when conditions allowed.

Return to Neutral: Recognising Policy Limits

Interestingly, after aggressively cutting rates, the RBI returned the policy stance to Neutral in June itself.

Governor Sanjay Malhotra clarified that:

• Monetary policy had very limited space left
• The focus would now shift to transmission of rate cuts
• A neutral stance would allow flexibility to cut, pause, or hike, depending on data

This was not a hawkish signal, but rather an acknowledgment that most of the rate action had already been delivered.

Key takeaway: RBI balanced aggression with realism, preserving flexibility.

August 2025: Benign Inflation, Rising Core Concerns

By August, inflation had turned decisively benign:

• CPI inflation: 2.07%
• Food inflation entered deflationary territory

However, the RBI flagged new concerns:

• Core inflation was rising steadily
• Inflation could move above 4% from Q4 FY 2025–26

The MPC emphasised that the impact of 100 bps rate cuts was still unfolding, reinforcing a wait-and-watch approach.

Key takeaway: RBI prioritised policy transmission over further rate action.

October 2025: Pause Amid Global Uncertainty

The October policy continued the status quo:

• Growth was described as resilient, driven by domestic demand
• Global risks, tariffs, and trade disruptions posed downside risks

While the RBI acknowledged that policy space existed, it chose clarity over urgency, leading to two consecutive pauses.

Key takeaway: RBI avoided overreaction, reinforcing credibility.

December 2025: A Calculated Surprise

December presented mixed signals:

• Growth had strengthened
• Currency pressures persisted
• Inflation remained extremely low

Despite expectations of a prolonged pause, the RBI delivered:

• Repo rate cut: 25 bps

RBI’s Rationale

• Core inflation (excluding precious metals) was minimal
• Real interest rates needed to be lower
• Demand stimulation was necessary

Updated Projections

• CPI inflation (FY 2025–26): 2.0%
• Q3 inflation: 0.6%
• GDP growth: 7.3%
• Q2 growth: 8.2% (six-quarter high)

Key takeaway: December confirmed that the easing cycle was not over.

Overall Assessment of RBI’s 2025 Policy

• MPC meetings with rate cuts: 4 out of 6
• Total rate reduction: 125 bps
• Policy approach: Data-driven, flexible, and pragmatic
• Inflation emerged as the weaker link, not growth

Each MPC meeting carried an element of surprise, making 2025 feel like a Bollywood script full of twists, but grounded firmly in macroeconomic logic.