Policy rates to remain low as long as inflation stays benign: RBI Guv
Mumbai: Reserve Bank Governor Sanjay Malhotra on Friday said policy rates will remain low as long as inflation stays benign, while reiterating that the central bank does not target any specific level for the rupee, which has recently slipped past 90 against the US dollar.
Addressing reporters after the Monetary Policy Committee cut the repo rate by 25 basis points to 5.25 per cent, Malhotra said the RBI’s inflation outlook points to continued softness. “Going forward, we expect benign inflation, and if it remains the way it is, policy rates will stay low,” he said. The RBI will remain data-driven, he added, declining to comment on how low the repo rate could go.
He, however, cautioned against reading too much into the extremely low inflation prints seen recently. “0.2 per cent is not the right level of inflation. We target 4 per cent, and that is what we aim to achieve,” he said.
On growth, Malhotra said the RBI expects moderation in the second half of 2025-26 compared with 8 per cent in the first half, partly due to tariff-related pressures on sectors like textiles, gems and jewellery and shrimp exports. But he noted these sectors have a limited impact on overall activity and that domestic demand remains the main growth driver.
A weaker rupee, he said, has mixed effects: a 5 per cent depreciation boosts growth by 0.25 per cent but lifts inflation by 0.35 per cent. The RBI’s forecasts assume the rupee at current levels. He also clarified that nominal GDP was not a factor in the rate cut decision, as policy is guided by real GDP.
On currency management, Malhotra reiterated that the RBI does not target any rupee band. “We allow markets to determine prices. We don’t target levels; we only work to reduce excessive volatility,” he said. The recently announced USD/INR buy-sell swap of $5 billion is meant for liquidity management, not for defending the rupee, he added.
India’s foreign exchange reserves stood at $686.2 billion as of November 28, offering over 11 months of import cover. Despite net FPI outflows of $0.7 billion so far in FY26, Malhotra said strong fundamentals and manageable current account dynamics should support future capital inflows.
