RBI May Cut Rates If Inflation Falls Below Forecast Or Growth Slows: Governor Malhotra

The Reserve Bank of India (RBI) may consider further easing of interest rates if inflation moves below its current projection or if there are signs of economic slowdown, according to RBI Governor Sanjay Malhotra. “The monetary policy committee will always factor in the evolving situation, the outlook, and then decide what the economy really needs,” he said.

Speaking to CNBC-TV18 on Tuesday, Malhotra stressed that monetary policy decisions will remain responsive to prevailing economic conditions. “Certainly, the policy rates can be cut” if inflation falls below the central bank’s forecast or growth stays weak, he noted.

This outlook follows the latest inflation data, which showed June consumer prices hitting their lowest level in over six years, largely due to softening food costs.

Balancing Inflation and Growth

While the RBI continues to prioritise price stability, Malhotra stressed that economic growth is also a key concern for the central bank. “One cannot say inflation is more important than growth; it’s always the mix of both factors. Both are equally important, and I would not say we are giving more weight to either number at this point,” he noted.

The RBI had already reduced the repo rate by 100 basis points since February, including a 50 basis point cut earlier this year. The central bank has shifted to a more neutral stance while aiming to steer overnight borrowing costs close to the benchmark rate, currently at 5.5 per cent.

Growth Outlook And Monetary Strategy

Addressing India's economic prospects, Malhotra said the RBI’s growth forecast of 6.5 per cent is broadly in line with its internal estimates. “The monsoon is favourable, we’re seeing optimism in consumer surveys, trade deals are ongoing,” he said.

Malhotra also highlighted that the central bank will continue to rely on incoming data, hinting that inflation may stay below the RBI’s 3.7 percent projection for the year.

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Reviewing Bank Ownership Regulations

Turning to regulatory matters, Malhotra revealed that the RBI is evaluating its policy on bank ownership, including a potential relaxation of foreign ownership caps. Currently, foreign investors can hold up to 74 per cent in Indian banks, but strategic foreign investors are limited to 15 per cent. The central bank is now considering whether to allow foreign banks to hold up to 26 per cent in domestic lenders as a general policy. “As the RBI simplifies the regulations, these uncertainties will be clarified,” he said.

When asked about the possibility of business conglomerates owning banks, Malhotra expressed caution, “Conducting business and real economic activities within the same group presents a conflict of interest.”

He also confirmed that an internal committee has reviewed the central bank’s liquidity management framework and plans to release a detailed report by the end of this month.

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