It is important to be agile and nimble in uncertain times, while maintaining a broad policy stance and avoid making firm commitments with regard to the future path of policy, Reserve Bank of India (RBI) Governor Sanjay Malhotra has said.
“In such circumstances, our broad approach has been to be even more data-dependent and to continuously reassess the balance of risks. We are therefore in a wait-and-watch mode now,” Malhotra said at Princeton University, US, on April 18. On Monday, the speech was uploaded on the regulator’s website.
The RBI has been maintaining a neutral stance for the last few policy cycles. Malhotra said this provides flexibility to adapt as the inflation-growth dynamics shift.
Governor explained how to conduct monetary policy, especially in navigating the global challenges creating high uncertainty like the ongoing West Asia crisis. Uncertainty is central to the monetary policy, but our core guiding principles remain unchanged — only their application changes, he said.
“The appropriate monetary policy response to such a supply shock is to look through the first-round effect to the extent that it does not feed into second-round dynamics. Second-round effects are the real concern. They can materialise if the supply chain disruptions continue for long.”
Malhotra highlighted the principles of policy-making, including prioritise robustness over optimality, anchoring inflation expectations, transparency, and clear communication.
“Clear communication of a central bank’s strategy and policy decisions, is a very potent underlay to achieve the objectives of monetary policy. It brings clarity of the approach and thus helps in both improving the transparency and anchoring inflation expectations.”
He said that flexible inflation targeting worked well in situations from pandemic to Ukraine war. “Since we adopted FIT, our average headline inflation has dropped to 4.7% (September 2016-December 2025), down from 7.4% in the years prior (April 2012-August 2016).”
Malhotra also highlighted the RBI’s role in providing facilitative ecosystem for India’s growth. He noted that India has averaged 6.1% annual growth over the past decade, outpacing peers like China (5.6%) and Indonesia (4.2%), while the global economy grew at 3.2%.