‘We are committed to ensuring financial stability’

Ahead of the upcoming Monetary Policy Committee meeting in August, Reserve Bank of India Governor Sanjay Malhotra sat down with businessline on Sunday for a comprehensive interview at the central bank’s headquarters in Mumbai. Malhotra underlined that price stability remains the central bank’s foremost priority even as it seeks to support growth as inflation risks re-emerge and global uncertainties cloud the economic outlook. He stressed that monetary policy decisions will remain data-dependent, highlighted the $32 billion mobilised through recent foreign capital measures, expressed confidence that the rupee is not overvalued, and outlined the RBI’s roadmap on liquidity, CBDC adoption, banking reforms and financial stability.

Does the current repo rate meet your objective of keeping inflation under check while supporting growth?

The present rate is the appropriate rate as assessed by the MPC in view of the prevailing growth-inflation dynamics and outlook in June 2026 amid heightened global uncertainties. Our primary mandate is price stability. Although generalised inflation pressures continue to remain modest so far, the risk of higher food, fuel and other input prices translating to a broad-based inflation environment is real. But our team is assessing the growth-inflation dynamics. We are heading into our next Monetary Policy Committee (MPC) meeting shortly. We will take an appropriate decision based on the data available and the outlook.

Inflation has breached the mid-point of the MPC’s tolerance band. Would you look through it?

The response of monetary policy to a supply shock is needed when it feels that inflation is getting generalised, or it is de-anchoring expectations. As I said, we are seeing some signs, but they are modest. Let’s wait for more data and let’s not pre-empt the MPC.

In recent times, the MPC has placed a premium on growth versus inflation. You have been helped by the fact that inflation has been benign. Now, going forward, if there is a threat to growth, what will be your approach to the growth-inflation dynamic?

First of all, I would say that our primary mandate is inflation and price stability. Even in the past period, we have been guided by that and not so much by growth. We are required to keep growth in mind while we endeavour to meet our primary objective of price stability. As you rightly mentioned, inflation was very benign and so we could continue, therefore, to support growth by reducing the policy rate by 125 basis points. However, as I mentioned, it is price stability which is our primary mandate. Growth is certainly a consideration. Therefore, we will do whatever is required first, to maintain price stability and then, to see to what extent we can support growth. However, as I mentioned, it is price stability which is our primary mandate. Growth is certainly a consideration. Therefore, we will do whatever is required first, to maintain price stability and then, to see to what extent we can support growth.

If you increase the repo rate down the line, will it be preceded by a change in stance?

As indicated last year in my statement of April 2025, the stance of monetary policy signals the intended direction of policy rates going forward. MPC is maintaining neutral stance right now, which gives flexibility to maintain status quo, or move policy rates either way. Therefore, it may not be necessary to change stance before taking any policy action. But, of course, all decisions on policy rate and the stance will be taken by the MPC after taking cognisance of the incoming data and the domestic inflation-growth dynamics.

How are you treading this path where the rupee is subject to volatility due to dollar appreciation, FPI outflows and demand for the greenback from importers?

I will make four points in this regard. One, most emerging market economies and Asian currencies have been under pressure since the outbreak of the West Asia conflict for reasons well known to all. The rupee is not an outlier or an exception. In fact, it has performed better than many Asian peers. Two, the depreciation in the rupee this year is not a reflection of India’s sound economic fundamentals. It has been largely driven by the expectations channel. India’s current account recorded a surplus of $2.8 billion in April-May 2026 against a deficit of $4.1 billion in the corresponding period of last year. Surplus in current account has accrued on account of strong services exports and remittances. Goods exports have also grown. Similarly, FDI in the first two months of this financial year recorded a net inflow of around $6.5 billion against $2.5 billion in the same period last year. External commercial borrowings (ECBs) also recorded net inflows during this period. Three, for a number of reasons, the medium-term outlook on the external sector, including BoP and forex reserves, is favourable and, therefore, we expect the real economy channel to remain positive and expectations channel to improve. Four, regarding our policy on exchange rate, I must reiterate that it remains unchanged.

In the last policy, you announced five measures to attract foreign capital. What outcomes do you expect from each of those measures?