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RBI Governor Sees Scope for Sustained Low Interest Rates
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RBI Governor Sanjay Malhotra on Thursday indicated that borrowing costs could stay relatively low over the medium to long term, backed by stable inflation and solid economic fundamentals. Speaking after the latest monetary policy announcement, he described India’s economy as “strong, resilient and robust,” while noting that the current neutral stance allows flexibility for policy changes in either direction. Even so, he suggested that a prolonged phase of lower interest rates remains a likely scenario.
The central bank has pegged GDP growth for the ongoing financial year at 6.9%, reflecting confidence in the country’s economic outlook despite global headwinds. Malhotra emphasised that ongoing structural reforms, along with coordinated actions by the government, RBI and other institutions, are helping sustain growth while keeping inflation in check. Inflation is projected at 4.6% for 2026–27, comfortably within the RBI’s target range of 2–6%, reinforcing expectations of price stability.
Earlier in the day, the Monetary Policy Committee unanimously decided to hold the repo rate steady at 5.25%, adopting a cautious wait-and-watch approach. The move comes against a backdrop of global uncertainty, including tensions in West Asia that have pushed up crude oil prices, weakened the rupee and disrupted trade flows. Malhotra said the RBI has taken into account recent ceasefire developments but warned that geopolitical risks and external shocks continue to pose challenges to both growth and inflation, requiring a carefully calibrated policy response.
On the transmission of rate changes, he noted that banks have reduced lending rates by around 90 basis points compared to the cumulative 125 basis points cut in the repo rate, while deposit rates have seen a pass-through of over 100 basis points—levels he described as satisfactory. Addressing concerns over currency market interventions, the Governor clarified that recent measures were aimed solely at managing excessive volatility in the rupee and are temporary in nature.
He reaffirmed the RBI’s commitment to strengthening and deepening financial markets, adding that such short-term interventions will not become permanent. Despite recent fluctuations in the forex market, Malhotra stressed that India’s underlying economic fundamentals remain strong, providing a stable base for continued growth in the period ahead.
The central bank has pegged GDP growth for the ongoing financial year at 6.9%, reflecting confidence in the country’s economic outlook despite global headwinds. Malhotra emphasised that ongoing structural reforms, along with coordinated actions by the government, RBI and other institutions, are helping sustain growth while keeping inflation in check. Inflation is projected at 4.6% for 2026–27, comfortably within the RBI’s target range of 2–6%, reinforcing expectations of price stability.
Earlier in the day, the Monetary Policy Committee unanimously decided to hold the repo rate steady at 5.25%, adopting a cautious wait-and-watch approach. The move comes against a backdrop of global uncertainty, including tensions in West Asia that have pushed up crude oil prices, weakened the rupee and disrupted trade flows. Malhotra said the RBI has taken into account recent ceasefire developments but warned that geopolitical risks and external shocks continue to pose challenges to both growth and inflation, requiring a carefully calibrated policy response.
On the transmission of rate changes, he noted that banks have reduced lending rates by around 90 basis points compared to the cumulative 125 basis points cut in the repo rate, while deposit rates have seen a pass-through of over 100 basis points—levels he described as satisfactory. Addressing concerns over currency market interventions, the Governor clarified that recent measures were aimed solely at managing excessive volatility in the rupee and are temporary in nature.
He reaffirmed the RBI’s commitment to strengthening and deepening financial markets, adding that such short-term interventions will not become permanent. Despite recent fluctuations in the forex market, Malhotra stressed that India’s underlying economic fundamentals remain strong, providing a stable base for continued growth in the period ahead.
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