Reserve Bank of India (RBI) governor Sanjay Malhotra on Tuesday said it was “premature” to discuss interest rate hikes, pushing back against market expectations of monetary policy tightening and reiterating that the banking regulator remains in a “wait-and-watch mode”.
In a televised interview with ET Now and ET Now Swadesh, Malhotra said the Monetary Policy Committee (MPC) had deliberately retained a neutral stance in June because the inflation outlook remains uncertain.
“What we have said is that we are cautious. We are aware that there could be risks, both on inflation as well as on growth… and we will continue to remain data dependent.”
He rejected suggestions that the central bank had prepared markets for a rate increase in the coming months. “If it were so certain that we are going to hike in the coming months, then we would have changed our stance from neutral to restrictive. We did not do that precisely because there is elevated uncertainty,” he said.
On the West Asia war
He said the de-escalation of was a positive development for both growth and inflation, adding that crude oil prices had moderated while fertilizer prices had fallen sharply.
“Upside risks because of crude, energy and fertilizers have reduced,” he said, adding that the truce in the region was beneficial for India given its deep economic linkages with the region.
However, he cautioned that uncertainty remains high and supply chains may take time to normalize. “The truce itself is fragile,” he said, adding that inventories would need to be rebuilt and damaged infrastructure restored before energy markets fully stabilize.
On inflation
He said RBI is closely watching whether higher fuel costs spill over into broader prices. “We do not see signs of that happening yet,” he said, referring to second-round inflation effects. “It’s only if there is a generalization…moving away from fuel to other parts that monetary policy should act.”
The governor said inflation currently remains below 4%, while core inflation is around 2.4%.
At the same time, he flagged concerns around monsoon performance, saying both weather conditions and energy prices remain key risks.
“I would not like to pick either one of them. Both are uncertain. Both have consequences for inflation,” he said.
In May, India’s retail inflation rose to 3.93% from 3.48% a month ago.
On 5 June, the six-member MPC kept the repo rate unchanged at 5.25%, citing geopolitical risks, supply-chain disruptions and weather-related uncertainties.
The committee has downgraded the growth outlook, while raising inflation projections, expecting the Indian economy to grow 6.6% in FY27, lower than 6.9% expected earlier, but cautioned that prolonged supply-chain disruptions, volatility in global financial markets, and weather-related shocks pose downside risks to the outlook.
, as measured by the Consumer Price Index, is projected at 5.1% in FY27, up from 4.6% earlier FY26.
On the external sector
Malhotra expressed confidence that the country’s balance of payments (BoP) position would remain resilient despite pressure from higher crude oil imports.
He expected healthy inflows from RBI’s recent measures to attract foreign currency deposits and overseas borrowings.
Along with the pause on rates, RBI, in a coordinated move with the Centre, widened overseas investors’ access to government securities, eased investment restrictions for foreign portfolio investors (), and backed tax exemptions on sovereign bond investments. Experts expect inflows of $35-45 billion as a result of the measures.
He also highlighted strong remittances, rising gross foreign direct investment, services exports and a pipeline of free trade agreements as factors supporting the external account.
“All of them put together, I think our balance of payments, and therefore its influence, its impact on the rupee, should all be very positive,” he said.
On the rupee
He reiterated that RBI does not target any specific exchange-rate level. “The rupee has to be determined by market forces,” he said. “We intervene primarily to ensure that there is no excessive volatility that gets into the markets.”
Asked about the biggest macroeconomic challenge over the next 12-18 months, he pointed to external shocks.
“As of now, as I see it, it’s the global uncertainty which is challenge number one,” he said. “We should be prepared for all uncertainties.”
Despite those risks, the governor maintained that India is well-positioned to withstand turbulence, citing strong macroeconomic fundamentals and a well-capitalized financial system.