RBI's Twin Moves: Simplifies Rupee Trade Settlements and Holds Repo Rate Amid Record-Low Inflation

RBI Simplifies Special Rupee Vostro Account Norms to Boost INR Trade Settlements

Regulatory Easing: Prior Approval Requirement Removed

In a significant move to promote international trade in Indian Rupees (INR), the Reserve Bank of India (RBI) has eased norms for setting up Special Rupee Vostro Accounts (SRVAs). As per the revised guidelines released on Tuesday, Authorised Dealer (AD) banks are no longer required to seek prior approval from the RBI to open SRVAs for correspondent foreign banks.

This change is expected to expedite the operationalisation of rupee-based trade settlements and encourage wider adoption of INR in global trade.

Background: SRVA Framework and Original Guidelines

The SRVA mechanism was initially introduced via a notification on July 11, 2022. It enabled invoicing, payment, and settlement of exports and imports in INR and was positioned as a strategic step to promote India's global trade footprint while reducing dependency on hard currencies like the US dollar.

Until now, AD banks had to approach the Foreign Exchange Department of the RBI for prior approval before opening such accounts, which added to procedural delays. The latest revision removes this bottleneck.

Compliance Still Mandatory Under FEMA and KYC Norms

While procedural clearance is no longer needed, the RBI has clarified that banks must continue to comply with all existing regulations under the Foreign Exchange Management Act (FEMA) and follow due diligence under standard Know Your Customer (KYC) norms. This ensures financial discipline and safeguards against misuse.

RBI Holds Repo Rate at 5.5% in August Policy Meeting

MPC Decision: Unanimous Vote for Status Quo

In its August 2025 policy review, the RBI’s Monetary Policy Committee (MPC) unanimously decided to keep the benchmark repo rate unchanged at 5.5%. The announcement was made by RBI Governor Sanjay Malhotra following the MPC meeting held on August 4–6.

The decision reflects a steady macroeconomic outlook and aligns with the RBI's inflation management strategy.

Inflation: Lowest CPI Since January 2019

The RBI cited declining inflation as the key reason for maintaining the repo rate. The Consumer Price Index (CPI) inflation for June 2025 fell to 2.10%—a 72 basis point decline from May—marking the lowest CPI inflation since January 2019.

Additionally, food inflation was in the negative zone:

  • Consumer Food Price Index (CFPI) inflation stood at -1.06%

  • Rural food inflation at -0.92%

  • Urban food inflation at -1.22%

Wholesale inflation also turned negative, with the Wholesale Price Index (WPI) for June at -0.13%, down from 0.39% in May. The decline was largely due to lower prices of food items, crude oil, natural gas, basic metals, and mineral oils.

Economic Outlook: Strong Monsoon and Festive Demand to Support Growth

Governor Malhotra expressed optimism about India's economic outlook, citing:

  • Good progress in the ongoing monsoon season

  • Anticipated increase in economic activity during the upcoming festival season

  • Supportive fiscal and monetary policies

Together, these factors are expected to bolster short-term economic growth while keeping inflation well within the RBI’s comfort zone.

Conclusion: INR Trade Push and Stable Rates Point to a Strategic RBI Approach

The twin developments—the simplification of SRVA norms and the pause on rate hikes—signal a calibrated approach by the RBI to support trade diversification, rupee internationalisation, and macroeconomic stability. By reducing friction in cross-border rupee settlements and maintaining an accommodative stance on rates, the central bank is actively enabling a more resilient and globally integrated Indian economy.


Location: Pune, Maharashtra, India

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