RBI Presser: Governor Malhotra Says ‘Economy is Structurally Very Strong’ While Hinting at Lower Rates
Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday signaled a prolonged era of lower borrowing costs, describing the Indian economy as "structurally very strong" despite a series of global macroeconomic shocks.
- Republic Business
- 3 min read
Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday signaled a prolonged era of lower borrowing costs, describing the Indian economy as "structurally very strong" despite a series of global macroeconomic shocks.
RBI hints at “low for long” rate regime
Addressing reporters after the announcement of a 5.25% repo rate hold, Governor Malhotra provided a dovish outlook on the interest rate trajectory. "As price pressures continue, it is possible that in the short to medium term we continue to have low rates," Malhotra stated.
The Governor’s comments suggest that the RBI is prioritizing growth and stability as the economy navigates external shocks, including the conflict in West Asia. He acknowledged that while the central bank has stepped in to manage the Rupee's recent swings, "Forex market measures are not going to be there forever."
Crude price hike
A key highlight of the briefing was the significant revision in energy cost assumptions. The RBI now projects crude oil at $85 per barrel for the current year, a steep climb from the previous estimate of $70. However, the central bank expects prices to cool back to $70 by next year. Malhotra flagged the ongoing uncertainty regarding the Strait of Hormuz, noting it is "very difficult to say" how long supply disruptions will persist. These disruptions remain the primary risk factor for the central bank’s inflation targeting.
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Resilience amid global volatility
Responding to concerns about global financial stability, Malhotra reassured investors about the health of domestic lenders. "The banking system is very resilient, and it is safe from regulatory pressures and supervisory frameworks," he said. The Governor attributed this strength to the structural reforms and government measures taken over the past few years. "Structurally, the Indian economy is very strong, very resilient," he added, pointing to the 6.9% GDP projection despite big shocks.
Malhotra acknowledged a long-standing demand from institutional investors regarding data disclosure. He confirmed that the "core inflation print has been a request by market participants," thus suggesting the central bank is taking feedback into account for its future communication strategy.
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No governance issues at HDFC Bank
The Governor directly addressed the recent leadership transition at HDFC Bank, which had sparked market speculation. Following a formal review, Malhotra provided a clear "no material concern" signal for the lender.
"Nothing related to governance or conduct was noticed during the supervisory inspection," Malhotra said. He added that the introduction of fluctuation reserves was specifically intended to bring harmony between different bank types, ensuring that the entire banking system remains "very resilient" and safe from supervisory frameworks.