At its fourth bi-monthly monetary policy of the current fiscal, the Reserve Bank of India (RBI) on Wednesday kept its interest rate unchanged at 5.5 per cent, while also announcing a slew of measures to promote the internationalisation of the rupee.
While RBI Governor, Sanjay Malhotra, said the Monetary Policy Committee (MPC) had unanimously decided to keep the short-term lending rate or repo rate, as it is called, unchanged with a neutral stance, he also spoke on a multitude of issues, including the promotion of the use of the domestic currency for cross-border settlements, which includes allowing banks to lend in Indian Rupees to non-residents from Bhutan, Nepal, and Sri Lanka, for bilateral trade.
Observing that India has been making steady progress in the use of the Indian Rupee for international trade, RBI Governor Sanjay Malhotra said permission has been granted to Authorised Dealer banks to lend in Indian Rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross-border trade transactions.
Malhotra also proposed to establish transparent reference rates for currencies of India’s major trading partners to facilitate INR-based transactions.
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The RBI has permitted wider use of Special Rupee Vostro Account (SRVA) balances by making them eligible for investment in corporate bonds and commercial papers. The SRVA is an account opened by a foreign bank with an Indian bank to facilitate international trade settlements directly in Indian Rupees (INR).
Such measures not only help reduce pressure on forex and keep the current account deficit at a comfortable level, they also help reduce dependence on the US dollar, thereby shielding the economy from sudden exchange rate fluctuations and currency crises.
India’s current account deficit moderated to USD 2.4 billion (0.2 per cent of GDP) in Q1:2025-26 as compared with USD 8.6 billion (0.9 per cent of GDP) in Q1:2024-25, due to increased net services surplus and strong remittance receipts despite a higher merchandise trade deficit, Malhotra said while announcing the fourth monetary policy review.
"During July-August 2025, the merchandise trade deficit continued to remain elevated. Notwithstanding rising global trade uncertainties, India’s services exports, driven by software and business services, witnessed robust growth in July-August 2025," he said.
Furthermore, the RBI governor predicted a sustainable current account deficit (CAD) during 2025-26 because of robust services exports and strong remittance receipts.
Overall, India’s external sector continues to be resilient, and RBI remains confident of meeting external obligations comfortably, he added.
As on September 26, 2025, India’s foreign exchange reserves stood at USD 700.2 billion, sufficient to cover more than 11 months of merchandise imports.
"Notwithstanding the robust domestic macroeconomic fundamentals, the INR has witnessed some depreciation accompanied by phases of volatility. RBI is keeping a close watch on movements of the INR and will take appropriate steps, as warranted," he said.
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