RBI Governor Signals Prolonged Low Interest Rates, Open to Further Cuts
Reserve Bank of India (RBI) Governor Sanjay Malhotra stated on Friday that key policy rates are expected to remain at low levels for an extended period, with the central bank prepared to implement further rate cuts if necessary. This announcement follows the RBI's decision to maintain the repo rate at 5.25% and retain a neutral stance during its recent bi-monthly monetary policy meeting.
Governor's Statement on Monetary Policy Direction
In a post-monetary policy press conference, Governor Malhotra emphasized, "The policy rates will continue to be at low levels for a long period of time, and they will go down even further." He clarified that any decisions on interest rates will be made by the Monetary Policy Committee (MPC), which will base its judgments on evolving macroeconomic conditions, guided by the latest GDP and inflation data series.
Historical Context and Recent MPC Actions
The RBI has been actively adjusting rates in recent times:
- In December, the central bank reduced the repo rate by 25 basis points.
- Since February of last year, cumulative rate cuts have totaled 125 basis points.
Governor Malhotra noted that policy transmission on the deposit side has been slower, and interest rates on fixed deposits are expected to decline accordingly.
Expert Analysis and Economic Outlook
Financial experts have interpreted the RBI's policy as reflecting confidence in India's domestic growth momentum, while maintaining caution regarding inflation and global uncertainties. Bajaj Broking Research commented, "The continued focus on market deepening and credit availability is structurally positive for financial markets."
GDP Growth Projections and External Factors
When questioned about the impact of recent trade deals signed by India, Governor Malhotra indicated that these agreements, along with other factors, could contribute up to 20 basis points to the country's GDP growth. The RBI has already upwardly revised its GDP forecasts for the first and second quarters of the upcoming fiscal year.
Government Borrowing and Fiscal Management
Deputy Governor T Rabi Sankar assured that the RBI will manage the government's borrowing program comfortably. The government's gross borrowing is set at ₹17.2 lakh crore for the next fiscal year, with net borrowing pegged at ₹11.73 lakh crore. Malhotra added that Treasury Bills (T-bills) will assist in managing the yield curve, enabling the government to raise the net borrowing amount at reasonable rates.
Additional Economic Insights
Governor Malhotra also addressed other economic aspects:
- Regarding the Budget's announcement on data center initiatives, he stated this is likely to attract substantial foreign investments.
- He observed that currency in circulation has increased significantly over the past year.
The RBI's stance underscores a commitment to supporting economic growth through accommodative monetary policy, while carefully monitoring inflationary pressures and global economic developments.
