Summary: On February 7, 2025, RBI Governor Sanjay Malhotra announced the latest monetary policy decisions. The Monetary Policy Committee (MPC) reduced the policy repo rate by 25 basis points to 6.25%, adjusting the standing deposit facility (SDF) to 6.00% and the marginal standing facility (MSF) and Bank Rate to 6.50%. The RBI continues its neutral monetary policy stance, aiming to align inflation with the 4% target while supporting growth. Real GDP growth is projected at 6.4% for 2024-25 and 6.7% for 2025-26, while CPI inflation estimates stand at 4.8% and 4.2%, respectively. The policy also introduced key regulatory measures. Forward contracts in government securities will be launched to help long-term investors manage interest rate risks. SEBI-registered non-bank brokers will gain direct access to the NDS-OM platform for government securities trading. A working group will review trading and settlement timings across market segments, with recommendations expected by April 30, 2025. In cybersecurity, RBI is introducing a dedicated ‘bank.in’ domain for Indian banks to mitigate phishing risks and plans to extend this initiative with ‘fin.in’ for other financial entities. In payments, RBI proposes an Additional Factor of Authentication (AFA) for international card-not-present transactions to enhance security in cross-border digital payments. These measures aim to strengthen market operations, cybersecurity, and financial stability.
A. Resolution of Monetary Policy Committee
The various decisions taken in the meeting of Monetary Policy Committee are as follows. (RBI Monetary Policy Resolution Dated 07/02/2025)
- Reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent with immediate effect. Consequently, the standing deposit facility (SDF) rate shall stand adjusted to 6.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent.
- Continue with the neutral monetary policy stance and remain unambiguously focussed on a durable alignment of inflation with the target, while supporting growth. (Target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent)
- The real GDP growth projected for 2024-25 at 6.4% and for 2025-26 at 6.7%.
- The CPI Inflation projected for 2024-25 at 4.8% and for 2025-26 at 4.2%.
- The updated policy rates are Repo- 6.25%, SDF- 6.00%, MSF and Bank Rate- 6.50%, CRR- 4.0%, SLR- 18.0%, Fixed Reverse Repo- 3.35%.
B. Statement on Development and Regulatory Policies
The various measures set out are as follows. (RBI Monetary Policy- Development and Regulatory Policies Dated 07/02/2025)
I. Financial Markets
Introduction of forward contracts in Government securities: In addition to Interest Rate Swaps, products such as Interest Rate Options, Interest Rate Futures, Interest Rate Swaptions, Forward Rate Agreements, etc. are available to market participants, to manage their interest rate risks. The forward contracts in Government securities will be introduced to enable long-term investors such as insurance funds to manage their interest rate risk across interest rate cycles. They will also enable efficient pricing of derivatives that use bonds as underlying instruments. The directions will be issued shortly.
Access of SEBI-registered non-bank brokers to NDS-OM: The Negotiated Dealing System – Order Matching (NDS-OM) is an electronic trading platform for secondary market transactions in government securities. Access to NDS-OM is, at present, available to regulated entities and to the clients of banks and standalone primary dealers. With a view to widening access, it has been decided that non-bank brokers registered with SEBI can directly access NDS-OM, on behalf of their clients. The instructions will be issued separately.
Comprehensive review of trading and settlement timings across various market segments: Over the last few years, there have been several developments including increased electronification of trading, availability of forex and certain interest rate derivative markets on a 24X5 basis, increased participation of non-residents in domestic financial markets and availability of payment systems on a 24X7 basis. It has been decided to set up a working group to undertake a comprehensive review of trading and settlement timing of financial markets. It is expected to submit report by 30th April 2025.
II. Cyersecurity
Enhancing Trust in the Financial Sector through ‘bank.in’ and ‘fin.in’ domains: RBI is introducing the ‘bank.in’ exclusive Internet Domain for Indian banks. This initiative aims to reduce cyber security threats and malicious activities like phishing, and streamline secure financial services, thereby enhancing trust in digital banking and payment services. Going forward, it is planned to have an exclusive domain viz., “fin.in” for other non-bank entities in the financial sector.
III. Payment Systems
Enabling Additional Factor of authentication in cross-border Card Not Present transactions: Introduction of Additional Factor of Authentication (AFA) for digital payments has enhanced the safety of transactions which, in turn, provided confidence to customers to adopt digital payments. This requirement, however, is mandatory for domestic transactions only. It is proposed to enable AFA for international card not present (online) transactions as well. The instructions will be issued separately.
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Disclaimer: The contents of this article are for informational purposes only. The user may refer to the relevant notification/ circular/ decisions issued by the respective authorities for specific interpretation and compliances related to a particular subject matter)
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