Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday said that the central bank will continue to prioritise price stability while supporting growth in India, Asia’s third-largest economy. While speaking at the Financial Express Banking and Finance Summit in Mumbai ahead of the RBI’s key policy meeting on August 6, Governor Sanjay Malhotra signalled a cautious approach to further rate cuts. He emphasised that, although inflation has eased, the battle isn’t over yet
“The battle against inflation is won, but the war continues. We never let our eyes off inflation,” Malhotra said.
Inflation control remains top priority: RBI Governor
The RBI governor said inflation is currently down to 2.1 per cent, the lowest in over six years, but monetary policy decisions are forward-looking. He clarified that current inflation numbers will impact economic output six to 12 months later.
“Our primary objective to maintain price stability and it is not inconsistent with the other objectives of growth because that is a pre-requisite,” Malhotra noted.
He added that while inflation has softened, it will continue to guide the central bank’s upcoming decisions, including the rate stance.
No reversal in easing, but future cuts will be cautious: Malhotra
While speaking on future rate cuts and policy stance, Malhotra said, “The rate cut is for the Monetary Policy Committee (MPC) to decide, but we are in a neutral phase.” He added that the Central Bank remains flexible, but the threshold for further easing is now higher.
“It doesn’t mean a reversal of easing policy. There can still be a cut, with flexibility to move up or down,” he explained.
The RBI has already reduced the benchmark repo rate by 100 basis points since February, with the most recent and larger-than-expected cut coming in June.
RBI may lower full-year inflation forecast; All eyes on RBI’s August 6 policy meet
The RBI had earlier projected average inflation for the fiscal year at 3.7 per cent. However, due to lower-than-expected numbers in the first quarter, this forecast could be revised downward.
“Q4 is still at 4.4 per cent, and we will see how it gets revised,” the governor said.
Economists are divided over whether the RBI will announce another rate cut at its next policy review meeting on August 6.
RBI to set up regulatory review cell
While addressing the Malhotra also announced that the RBI will form a regulatory review cell to simplify banking rules. The new cell will periodically assess existing regulations, remove outdated rules, and plug any gaps to strengthen financial stability. “We will simplify rules for regulated entities. It is important to strike the right balance between growth, efficiency and stability,” he said.
The RBI governor concluded that price stability and sound banking regulation are twin challenges that the central bank will continue to prioritise.