WHAT CHANGED SINCE APRIL 2025 MONETARY POLICY
If the April monetary policy was announced in the shadow of reciprocal tariffs, June policy had several positive outcomes as the backdrop. Firstly, reciprocal tariffs are on hold till July 09, 2025. Secondly, India and the US are moving towards a trade deal, which could offset the impact of reciprocal tariffs substantially. Thirdly, GDP growth at 7.4% in Q4FY25 was sharply higher, helped by agriculture and higher defence capex. Above all, government managed to rein in fiscal deficit at under 4.8% of GDP for FY25, despite higher rupee deficit. It is in this backdrop that the June 2025 monetary policy was announced on June 06, 2025.
JUNE 2025 MONETARY POLICY SENDS OUT SUBTLE SIGNALS
In the previous April policy, the RBI not only cut repo rates, but also changed the stance of the monetary policy to accommodative. In addition, RBI MPC also had cut the inflation and GDP growth estimates by 20 bps each in the April policy. The June 2025 policy has sent out 2 distinct messages. Firstly, there is a huge support to growth via 50 bps repo rate cut; and a big push to liquidity through a 100 bps CRR cut. In addition, the RBI has also cut inflation estimate for FY26 by another 30 bps to 3.7%. That is lower than the 4% RBI median target. Secondly, RBI also hinted at the end of this rate cut cycle, by shifting the stance of monetary policy back from “Accommodative” to “Neutral.” That is a critical signal from the RBI.
HIGHLIGHTS OF RBI POLICY STATEMENT – JUNE 2025
Here are some of the key takeaways from the June 2025 policy statement and the RBI governor’s address post the policy announcement.
For the second policy in a row, the RBI MPC managed to pack a lot of action and crucial decisions into one single policy statement.
RBI MPC CUTS FY26 INFLATION ESTIMATE TO 3.7%
While there were triggers for a lower inflation estimate, the consensus view was that the RBI may wait and watch for the outcome of the tariffs and the Indo-US trade deal. However, the RBI MPC went ahead and aggressively cut inflation estimates for FY26 by 30 bps to 3.7%, with generous front-ending. Clearly, hopes of strong monsoons, robust Kharif and tepid commodity prices are expected to outweigh tariff-related risks. The RBI’s reduced inflation projection of 3.7% for FY26 is distributed as follows. For next 4 quarters; RBI projected inflation for Q1FY26 at 2.9%, Q2FY26 at 3.4%, Q3FY26 at 3.9%, and Q4FY26 at 4.4%. The RBI MPC is pencilling in front ending of lower food prices on inflation in the first two quarters.
RBI MPC HOLDS FY26 REAL GDP GROWTH AT 6.5%
After having cut the FY26 GDP growth estimates by 20 bps from 6.7% to 6.5% in the April policy, the RBI MPC did not see any justification for another cut. The Q4FY25 GDP growth came in higher than expected at 7.4%, with FY25 GDP growth at 6.5%. However, FY26 is likely to see growth impacted by global risk factors and the geopolitical skirmishes on the border. Hence, RBI is playing it safe by maintaining status quo on GDP growth estimates. The FY26 GDP growth projection of 6.5% has been broken up quarter-wise as follows. For Q1FY26 at 6.5%, Q2FY26 at 6.7%, Q3FY26 at 6.6%, and Q4FY26 also at 6.3%. This is exactly the same quarter-wise break-up of growth as seen in the April policy statement.
Along with a big-bang approach, RBI also underlined that central bank’s options were now limited. We await insights into the policy from the minutes on June 20, 2024. The next monetary policy from August 04-06, 2025 should give better picture of the road ahead.
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