Introduction
India’s economy today is running through a maze of contradictions. On one hand, growth projections remain robust compared to global peers, but on the other, private consumption is sluggish, rural demand is uneven, and corporate capex still hasn’t found its second wind. Inflation has been playing hide-and-seek, easing in some months only to flare up again, thanks to food price shocks and crude oil uncertainty. Add to this the global backdrop: sticky inflation in developed markets, a stronger US dollar pressuring emerging market currencies, volatile capital inflows, and geopolitical tensions that continue to disrupt supply chains. For India Inc., this mix translates into rising input costs, cautious consumer sentiment, and a financing environment that is far less forgiving than it was two years ago. Against this backdrop, business leaders and markets had one clear expectation: a rate cut. A neat monetary stimulus that could have lowered borrowing costs, eased liquidity, and injected a quick shot of optimism into boardrooms and balance sheets alike. After all, the pressure on growth is visible, and sentiment needs a nudge. Instead, the Monetary Policy Committee (MPC) chose not to indulge in what many would call the “easy way out.” No sugar rush this time. Instead of chasing a temporary high, the RBI served up a menu of reforms, subtle in design but potentially more powerful in impact. This was less about headlines and more about hard discipline, less about short-term feel-good factors and more about steering the economy toward structural stability.
Why did RBI Skip Rate Cut?
At first glance, a rate cut might have looked like the natural choice, the easy medicine to soothe slowing demand and perk up sentiment. But the RBI’s reasoning was more deliberate. While headline inflation has softened, the underlying picture remains uneven. Food inflation, driven by erratic monsoon patterns and supply shocks, is anything but predictable. Cutting rates into such uncertainty could risk undoing hard-won credibility on inflation management. For the central bank, anchoring inflation expectations remains a non-negotiable priority because once that anchor slips, the cost of regaining stability multiplies. The RBI has already delivered several rate actions in the past cycles, but their full impact has yet to fully percolate through the financial system. Lending rates take time to adjust, corporate borrowing costs recalibrate with a lag, and consumption responses are not immediate. Cutting further now, before earlier easing has played out, would risk overdosing the system without knowing whether the last prescription worked. The Goods and Services Tax (GST) rollout, still settling into the system, has created near-term disruptions but promises long-term efficiency. The RBI would rather wait and see how GST reshapes revenue flows, corporate cash cycles, and consumer spending before rushing into another monetary push. In other words, do not mix two moving variables at once.
With the US Federal Reserve and other major central banks holding a higher-for-longer stance, any aggressive Indian rate cut would risk widening the interest rate differential, triggering outflows of foreign capital and adding pressure to the rupee. In an era of volatile oil prices and a stubbornly strong dollar, that is a gamble RBI is unwilling to take. Despite patchy demand, India remains one of the fastest-growing large economies. The RBI’s stance signals confidence that structural drivers such as government capex, manufacturing momentum under PLI schemes, and digital adoption can sustain medium-term growth without the crutch of a rate cut. Monetary easing, therefore, is being preserved as a tool for genuine distress, not as a quarterly habit. Thus, RBI chose patience over popularity. It opted to keep its powder dry, test the impact of past actions, and focus on deeper reforms rather than a quick policy tweak.
Key Reforms Announced
The October 2025 Monetary Policy Committee meeting of the Reserve Bank of India marked a significant shift in the central bank’s approach, away from short-term rate adjustments and towards bold, long-term structural reforms designed to deepen financial markets, enhance corporate financing, and internationalise the Indian rupee.
Transforming Corporate Financing and Capital Markets
A major step was allowing banks to finance corporate acquisitions, a facility previously restricted due to risk concerns. This opens up structured, low-cost funding channels for mergers and acquisitions, enabling Indian companies to consolidate more efficiently and optimise capital expenditure under a robust regulatory framework. Additionally, the RBI substantially increased the lending limit for IPO financing from INR 10 lakh to INR 25 lakh and for loans against shares from INR 20 lakh to INR 1 crore, effectively modernising access to market-based funding. The removal of loan ceilings against listed debt securities, alongside the allowance for surplus Special Rupee Vostro Account balances to be invested in corporate bonds and commercial papers, reflects an overarching commitment to deepening liquidity and expanding investment avenues. These measures collectively improve structured financing, lower the cost of capital, and spur growth in both equity and debt markets.
Advancing Rupee Internationalisation and Regional Influence
The RBI’s intent to internationalise the rupee was evident in its decision to permit Indian banks and their overseas arms to lend in rupees to residents or institutions in neighbouring countries such as Nepal, Bhutan, and Sri Lanka. This initiative is designed to reduce India’s dependence on the US dollar in regional transactions, bolster financial influence across South Asia, and build greater confidence in the rupee’s stability. By expanding the list of benchmarked currencies for the Financial Benchmarks India Limited (FBIL) beyond the USD, Euro, Pound, and Yen, rupee-based settlements are made more efficient, serving both regional trade interests and India’s strategic ambitions. Further, surplus rupee balances held by foreign entities can now be invested in Indian corporate bonds and commercial papers, deepening the integration of Indian markets with the regional financial system.
Strengthening Banking Sector Resilience and Regulatory Norms
Core reforms also targeted banking sector resiliency and credit expansion. The RBI introduced a risk-based premium framework for deposit insurance, moving away from a flat premium system that had been in place since 1962. Here, better-rated banks pay lower premiums, directly incentivising sound risk management and strengthening financial stability. Implementation of the Expected Credit Loss (ECL) framework and revised Basel III capital adequacy norms is planned from April 2027, introducing lower risk weights for crucial sectors like MSMEs and home loans. These moves, along with the removal of lending restrictions to large corporates with exposures above INR 10,000 crore, make it easier for banks to finance corporate growth while systemic risk is managed through the Large Exposure Framework. The result is a banking sector that can efficiently extend credit, maintain robust risk management practices, and operate on par with international standards.
Conclusion
Altogether, these reforms are expected to profoundly deepen India’s financial markets, unlock liquidity, facilitate faster and safer corporate consolidation, and elevate India’s regional and global financial profile. Businesses will benefit from better structured financing, lower capital costs, and quicker capital deployment, while the resilience, stability, and risk efficiency of the banking sector will be upgraded. Above all, the strategic direction towards rupee internationalisation underscores India’s intention to assert financial sovereignty, reduce reliance on intermediary currencies, and strengthen its centrality within both South Asian and global markets.
References
Press Information Bureau – RBI Monetary Policy: Repo Rate Unchanged, GDP Outlook Brightens
Press Information Bureau – Perspective: RBI Monetary Policy
The Economic Times – RBI unveils new measures for internationalisation of Indian Rupee
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