After recording an 8.2 per cent gross domestic product (GDP) growth in July–September (Q2FY26) — the highest in six quarters — high-frequency indicators for November suggest that overall economic activity has held up, with demand conditions remaining robust, the Reserve Bank of India (RBI) said in the state of the economy report in its December monthly bulletin released on Monday.
What do high-frequency indicators signal for November?
“The high-frequency indicators suggest that overall economic activity held up in the post-festival month of November. While the low GST revenue collections were largely influenced by GST rate rationalisation, other available high-frequency indicators of economic activity such as e-way bills, petroleum consumption and digital payments registered a pick-up in growth,” the central bank said in the bulletin.
How does this square with the MPC’s recent assessment?
The RBI’s commentary follows the release of the minutes of the recently concluded Monetary Policy Committee (MPC) meeting, which revealed Governor Sanjay Malhotra’s observation that while domestic economic activity remained resilient in Q3, weakness in some leading high-frequency indicators suggested a deceleration in growth momentum in the second half (H2) compared with the first half (H1).
“Overall, real GDP growth is poised to exceed 7 per cent, much above our expectation of 6.5 per cent at the beginning of the year, as healthy domestic prospects outweigh concerns on the external front. Going forward, domestic growth in H1 next year is projected to remain strong, though moderate, at 6.7–6.8 per cent,” he said in the MPC minutes.
What is the RBI’s current monetary policy stance?
RBI’s six-member MPC has reduced the policy repo rate by 125 basis points since February, bringing it down from 6.5 per cent to 5.25 per cent. In the recently concluded MPC review, the committee cut the repo rate by 25 basis points and maintained a neutral stance, citing a benign outlook for both headline and core inflation, which provided space for monetary policy to further support growth momentum.
How does RBI view reforms and the global environment?
The central bank, in the state of the economy report, said that continued focus on macroeconomic fundamentals and economic reforms should help unlock efficiencies and productivity gains to firmly keep the economy on a high-growth trajectory amid a fast-changing global environment.
According to RBI, 2025 witnessed an unprecedented shift in global trade policies, marked by a move towards bilateral renegotiations on tariffs and terms of trade, with the ripple effects on global trade flows and supply chains still unfolding.
“This has led to heightened global uncertainties and concerns about the prospects for global growth,” it said, adding that while equity markets remained ebullient for much of the year on optimism around Big Tech, concerns over high valuations have recently given rise to risk-off sentiment. Portfolio flows to emerging markets have also slowed in recent months, the RBI said.
What is RBI’s assessment of domestic demand trends?
As far as the Indian economy is concerned, while it was not fully immune to external sector headwinds, coordinated fiscal, monetary and regulatory policies helped build resilience over the year. “Bolstered by strong domestic demand, economic growth has been robust. A benign inflation outlook has provided adequate space for monetary policy to support growth,” it said.
RBI highlighted that while there was a sharp uptick in real GDP growth in Q2, nominal GDP registered a four-quarter low growth of 8.7 per cent. The narrowing of the gap between nominal and real GDP growth reflected moderation in the GDP deflator to a low of 0.5 per cent, it said.
Which demand indicators strengthened in November?
According to the report, during November, overall demand conditions remained robust. Indicators of urban demand strengthened further, building on the festival season pick-up.
“Retail passenger vehicle sales grew at their highest pace in over a year, aided by GST benefits, marriage season demand and improved supply. Domestic air passenger traffic registered its fastest growth since May 2025,” the report said, adding that retail tractor sales growth, buoyed by positive rabi season prospects, reduction in GST rates and a hike in minimum support prices of rabi crops, registered a significant pick-up.
“Other high-frequency indicators of rural demand, namely retail automobile sales, however, witnessed a sharp deceleration in the post-festive season, coupled with adverse base effects,” it further said.
What does the trade and inflation data show?
According to the report, in November, the merchandise trade deficit narrowed on account of a surge in merchandise exports and a contraction in merchandise imports. The contraction in imports in November compared to October was mainly driven by gold, as post-festive season demand declined. As a result, gold accounted for 11 per cent of the merchandise trade deficit in November, down from 33 per cent in October. Additionally, exports to the US increased in November after declining consecutively in the previous two months.
RBI also highlighted that in November headline inflation edged up to 0.7 per cent, driven by a lower rate of deflation in food prices, after reaching an all-time low of 0.3 per cent in October.
How did liquidity and credit conditions evolve?
Meanwhile, the central bank noted that overall financial conditions remained benign during the month, albeit with tightening across market segments except the government securities market since the second half of November.
While banking system liquidity remained largely in surplus during the second half of November, system liquidity turned into a deficit in the second half of December (up to December 19) on account of a build-up in government cash balances due to advance tax payments. To offset the transient liquidity tightness, the central bank conducted variable rate repo auctions. Additionally, with the aim of injecting durable liquidity into the system, RBI conducted open market operation (OMO) purchases of government securities amounting to Rs 1 trillion and three-year USD/INR buy-sell swaps of $5 billion in December.
Separately, as of November 28, total outstanding credit to the commercial sector rose by 13.2 per cent, with non-bank sources registering growth of 17 per cent.
Additionally, the RBI noted that in response to the cumulative 100 basis points reduction in the policy repo rate during February–October 2025, banks have reduced their external benchmark-based lending rates on fresh loans linked to the repo rate by the same magnitude.
The weighted average lending rates on fresh loans have declined by 69 basis points and on outstanding rupee loans by 63 basis points, while rates on MCLR-linked loans have fallen by 50 basis points. On the deposit side, banks reduced interest rates on fresh deposits by 105 basis points and on outstanding deposits by 32 basis points.
