RBI Governor Malhotra backs holding repo rate at 5.5 with neutral stance, cites strong macro fundamentals, lower inflation forecast, but warns on tariff and geopolitical risks
Amid heightened global uncertainty triggered by tariffs and geopolitical tensions, Reserve Bank of India (RBI) Governor Sanjay Malhotra has reiterated the need for a cautious and consistent monetary policy approach, even as he underscored the strength of India’s macroeconomic fundamentals.
In the minutes of the August 4-6 Monetary Policy Committee (MPC) meeting, Malhotra stressed that it is important to maintain a broad policy stance amid the current crisis, backing the central bank’s decision to keep the repo rate unchanged at 5.5% and retain a neutral stance.
At the same time, the governor struck a calibrated tone on growth, noting that there may be a need to sacrifice some short-term upside to ensure sustainable long-term growth.
This comes against the backdrop of rising external headwinds, including tariff pressures from the US and ongoing geopolitical tensions that continue to cloud global demand.
Despite these risks, Malhotra maintained that India’s financial system remains healthy and resilient, and continues to support economic growth. He pointed to strong macro fundamentals and policy continuity as key buffers helping the economy navigate global volatility.
On the fiscal front, the RBI chief highlighted that fiscal consolidation has progressed steadily in recent years, offering additional stability to the broader macroeconomic environment.
Further, he flagged improvements on the inflation front, stating that inflation expectations are now better anchored and less volatile, aided by easing food prices and effective policy interventions. This aligns with the RBI’s downward revision of its FY26 inflation forecast to 3.1%.
However, Malhotra cautioned that uncertainties remain, particularly from evolving tariff dynamics, which could influence inflation and growth trajectories going forward. As a result, the central bank continues to favour a “watchful” stance, allowing flexibility to respond to rapidly changing global and domestic conditions.
The broader MPC echoed a similar sentiment, advocating a wait-and-watch approach as the impact of previous rate cuts transmits through the economy and external risks play out.
