India’s economic activity continues to hold firm despite a challenging global environment, supported by favorable financial conditions that have enabled effective transmission of monetary policy easing. The Reserve Bank of India’s rate setting committee has reduced the policy repo rate by a total of 100 basis points (bps), bringing it down to 5.5% through a series of cuts between February and June 2025.
Additionally, a phased 100 bps reduction in banks’ cash reserve ratio (CRR), starting from the fortnight beginning 6 September 2025, is set to inject primary liquidity of ₹2.5 trillion into the financial system. This move aims to lower the cost of funds for banks, further strengthening the transmission of rate cuts into the credit market.
During the period from February to April 2025, following a 50 bps reduction in the repo rate, the weighted average lending rate on fresh rupee loans declined by 6 bps, while rates on outstanding loans fell by 17 bps. On the deposit side, the weighted average domestic term deposit rates on fresh deposits dropped by 27 bps, and by 1 bp on outstanding deposits.
However, the report also cautions about risks to medium term global economic prospects due to rising trade barriers and persistent policy uncertainties, which could leave lasting scars on global growth. Intensifying geopolitical tensions may further erode already fragile growth momentum. In this context, developments in global trade policy after the temporary tariff pause ends in July, along with geopolitical events, will play a crucial role in shaping medium term outcomes.
On the domestic front, capacity utilisation among manufacturing firms remained above its long term average, and high frequency indicators for May pointed to a revival in rural demand, buoyed by strong performance in the agricultural sector. India also led among surveyed countries in terms of overall activity expansion, according to the Purchasing Managers’ Index (PMI), with new export orders increasing even as other major economies saw contractions.
All of these factors underscore the Indian economy’s significant resilience in the face of global economic, trade, and geopolitical uncertainties. As of end December 2024, India’s foreign exchange reserves stood at $699 billion sufficient to cover more than 11 months of goods imports and 97% of the country’s external debt.