India’s central bank Governor Sanjay Malhotra pushed back against expectations for future interest-rate increases, saying it was “premature” to discuss the policy outlook given ongoing geopolitical uncertainties.
“If it was so certain that we are going to hike in the coming months, then we would have changed the stance from neutral to restrictive, right? We did not do that,” the Reserve Bank of India chief said in an interview with television channel ET Now on Wednesday. “We did not do that precisely because there is elevated uncertainty.”
This is the first time Malhotra has provided a public assessment of India’s economy and policy outlook following truce talks between the US and Iran, which have led to a significant drop in global crude prices. That has been a big relief for India, which imports 90% of its oil needs.
The yields on India’s 10-year benchmark government bonds slipped two basis points to 6.85% after Malhotra’s comments. The rupee maintained losses and was down 0.1% to 94.85 to a dollar.
“The truce itself is fragile. It will take some time for the supplies to restore fully,” Malhotra said, reiterating that the RBI remains data-dependent. “Upside risks have certainly reduced, but we’ll have to still wait and watch as to where crude prices ultimately end up.”
Minutes of the RBI’s June 3-5 monetary policy meeting showed rate-setters discussed India’s economic outlook would improve rapidly once the war ends, when they decided to leave the key rate unchanged at 5.25%. Following the Iran war truce announcement, economists at Citigroup Inc. scrapped their call for rate hikes this financial year.
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The governor said the monetary policy committee is keeping a close eye on both monsoon and crude prices.
India’s cumulative monsoon rainfall remains 43% below normal as of June 22. Deficient rainfall could emerge as the next major risk to the economy with implications for agricultural production and rural demand. Malhotra pointed out that India has “sufficient” food buffers though policy makers will remain watchful of any impact on the broader economy and inflation.
Currently, India’s consumer price index remains below the RBI’s 4% target.
“As of now, as I see it, is the global uncertainty, which is challenge number one,” Malhotra said. “We are very well prepared to meet all challenges.”
Rupee Measures
Malhotra reiterated that the rupee — which hit a record low of near 97 per dollar last month — remains market-determined, while stressing that the RBI stands ready to act against excessive volatility. The central bank does not target any specific level for the currency but uses its policy tools to ensure movements remain orderly and are not driven by speculative pressures, he said.
During its June policy meeting, the RBI announced a slew of measures to support the rupee, including allowing banks to raise foreign-currency deposits. Authorities also eased investment rules and offered tax incentives to boost foreign inflows. The steps have helped shore up the rupee.
Malhotra said India remains hopeful of securing inclusion in Bloomberg Aggregate Bond Index, which would support capital inflows. Indian bonds entered the JPMorgan Chase & Co.’s emerging-market debt index in 2024.
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