DOVISH MONETARY POLICY OF OCTOBER 2025.

 MONETARY POLICY

 Monetary policy primarily deals with the tools and techniques of controlling the demand for and supply of money so as to achieve desired results in the economy. Policy makers utilises mainly both interest rates and money supply adjustment through the Central Bank (RBI in India) to influence economic activities like economic growth and stability in prices and and balance of Payments. The tools of monetary policy and their utilisation  may vary from Central Bank to Central bank depending on country's stage of development, institutional structure, tradition and political system. Major tools of monetary policy utilised by Reserve Bank of India  can be divided into six namely 1.Open Market operations (Buying and selling of Government securities by RBI to influence the amount of money circulating in the economy)2.Discount Rate or Bank Rate(The interest rate at which RBI lends money to commercial banks)3. Reserve Requirements- percentage of bank deposits that commercial bank's have to hold in Reserve with RBI. 4.Repo Rate or Repurchase Rate refers to the rate at which RBI lends money to commercial banks.5.Reverse Repo rate refers to the interest rate at which RBI borrows money from commercial banks, and 6. Cash Reserve ratio (CRR)).These instruments have to be optimally utilised by RBI to meet the objectives of control of money supply, management of inflation, promotion of economic growth , development and sustainability of the external sector. 

POLICY MEASURES 

RBI's Monetary policy Committee in its 57 th meeting held during September 29th to  October 1st recommended measures to tackle impact of global headwinds and to maintain domestic resilience. Accordingly  RBI  decided to retain Repo rate at 5.5% with a neutral stance in the context of a caliberated approach to India's macroeconomic fundamentals charecterised by steep decline in inflation ( estimated to be 2.6% for FY 2026). Projected GDP growth rate of 6.8% and external risks associated with US tariff policy andgeopolitical challenges. RBI accordingly announced a series of measures for better banking competitiveness, credit flow,ease of doing business, foreign exchange management, consumer satisfaction and internationalisation of rupee.India's current account deficit narrowed to 0.2%of GDP in Q1 Fy 2025 from 0.9% in last year same time. Significantly as per existing data  the Indian equity market during April - September of 2025-26 witnessed 149.4 an upward growth trajectory.As noted earlier the upward projected GDP growth of 6.8% for 2025-26 is based on estimates Projected as 7.8% in Q1,7.0% in Q2,6.4% in Q3,and 6.2% in Q4 respectively, assuming normal monsoons and stable conditions. Advocating India's resilience against global uncertainties several global agencies and analysts  projected high GDP growth for India. While IMF projected 6.4 % growth for Fy 26,Fitch projected 6.9% for Fy 26 and 6.3 % for Fy 27,S&P global 6.5 % for FY 26,UN 6.3% for  FY 26,6.4 % for FY 27, CII 6.4-6.7% for Fy 26 and  OECD 6.7% for  FY 26 and so forth. 

IMPLICATIONS

Eventhough there is no rate cut by RBI it is  launching plans to bolster credit flow to corporates and capital markets RBI is also planning to encourage more trade settlement in Indian Rupee. Cheaper mergers and acquisitions funding are also allowed. Similarly the cap for IPO financing had increased from₹ 10 lakhs to₹25 lakhs.As per liberalised policy  the caps have been removed on large corporate loans and banks can fund Mergers & acquisitions and Initial public offers.Basel III norms measures will be implemented including deposit insurance cover of ₹5 lakhs per depositor per bank  which included both principal and interest, and also providing resilience and competitiveness of the banking sector. In the external sector RBI is allowing easier external commercial borrowing and cheaper foreign loans in order to boost dollar inflow.The external commercial borrowing (ECB) framework currently suggest removal of cost caps,widening eligibility and fund raising limits depending on financial strength of the borrower so as to make easier for companies to access foreign funds. In addition to that already India has established mechanisms for rupee payments with neighbouring countries of Nepal, Bhutan, and Srilanka through Special Rupee Vostro Accounts It may be noted here that the Unified Payments Interface ( UPI) which aready exist between India and many countries are expected to simplify trade and financial flows  easily.MSME SECTOR 

MSME SECTOR AND EMPLOYMENT 

MSME sector  is a vital component of Indian economy contributing towards GDP, industrial output,exports and employment. It contributes 29 % of India's GDP and employs over 60% of our work  force.Expansionary monetary policy has been favouring MSME sector to expand it's operations, providing working capital,innovations and  investment in new technologies etc.Factors like increased availability of credit, push for lower rates and increased liquidity in the system enables overall credit flows to the MSME sector. Inorder to strengthen MSME sector comprehensive policy framework with targeted intervention in priority areas of - tailored financial solutions, technology integration and industry, R& D promotion mechanism, Skill development and Centralised digital portal etc were suggested by experts. As per the data provided by Centre for Monitoring Indian Economy ( CMIE) Indian firms account for about 94 % of the projected  projects estimated to reach 9.95 lakh crores in April-september 2025.In short Dovish monetary policy along with reduction in fiscal GST rate rationalisation are expected to boost both consumption and investment. The liberal credit facilities offered to corporate sector may increase mergers and acquisitions but there is no guarantee that it will promote employment. On the otherhand if the policy incentives given to MSME sector and start ups are effectively channelised it can generate employment opportunities.