Indian economy presents picture of strength, says RBI Guv Malhotra

Mumbai: Indian economy presents a picture of strength, stability, and opportunity, said Reserve Bank Governor Sanjay Malhotra at the MPC meet earlier this month, while stressing that the monetary policy needs to remain watchful as uncertainties of US tariffs are still evolving.

The Reserve Bank of India (RBI) on Wednesday released the minutes of the Monetary Policy Committee meeting held from August 4 to 6.

Malhotra and five other members of the Monetary Policy Committee (MPC) voted for keeping the short-term lending rate at 5.5 per cent.

“Overall, our economy presents a picture of strength, stability, and opportunity. India’s strong fundamentals, growth-inducing policies, and forward-looking economic strategy clearly place it in a strong position,” the Governor said as per the minutes.

While growth has remained steady, inflation outcomes have been far more benign on account of higher food price moderation, he said.

“Although we are likely to see inflation undershooting the target in the near term, with a likelihood of monthly numbers even crossing the

lower tolerance band of 2 per cent, headline inflation is projected to inch up from Q3 onwards. The uncertainties of tariffs are still evolving,” Malhotra said.

Given the current state of uncertainty on the external front, monetary policy needs to remain watchful, he opined.

The MPC consists of three RBI officials -- Governor Malhotra, Deputy Governor Poonam Gupta and Executive Director Rajiv Ranjan; and three external members -- Nagesh Kumar, Saugata Bhattacharya, and Ram Singh.

Malhotra also said the CRR cut, which is likely to kick in from next month, will facilitate further monetary transmission and stimulate economic activity.

Deputy Governor Gupta, while voting for status quo on repo rate, said taking into account the growth-inflation outlook, past actions, the state of the domestic economy, and the global dynamics, “I do not see the scope or rationale for a further policy rate cut at this point”.

She also favoured a neutral monetary policy stance so that future actions could be data dependent, i.e., conditioned by the relative dynamics of growth and inflation, while also internalising the impact of policy actions from other relevant countries.

According to the minutes, Rajiv Ranjan said overall, growth remains resilient, supported by public capex, rural demand, and steady services activity, although industry shows some unevenness.

“An additional rate cut at the current juncture could also reduce our policy space should global or domestic risks materialise. After weighing these considerations, I conclude that the balance of risks calls for no action in this meeting, and accordingly, I vote for the policy repo rate to be kept unchanged at 5.50 per cent,” he said.

External member Singh said that to respond to an unpredictable set of events, it is crucial to maintain policy options, in terms of the number of policy tools that can be used as well as their force.

“Only the incoming data can help in assessing the inflation with the precision required under the current global economic order. Moreover, the MPC needs to watch the pass-through of the 100 bps rate cut to ascertain its effects on inflation and growth. We need to monitor the sectoral impacts of direct and indirect effects of tariffs on Indian exports,” he said.

Bhattacharya said the MPC has been proactive in easing monetary policy since February 2025, in conjunction with multiple RBI measures to reinforce transmission and ease lending conditions.

“...given the fluidity of the macro-financial environment, coupled with the ambiguities in the information set presently available, I believe that a pause in monetary policy decisions, both on the repo rate and the stance, is appropriate. Hence, I vote for the status quo in this MPC meeting,” he said.

MPC member Kumar said while the case for stimulating private investments and urban demand remains, and the benign inflation outlook provides policy space, “we may wish to wait and watch” as the transmission of the existing actions takes place and how the trade policy uncertainties play out before considering policy actions at the October meeting of the MPC.