Inflation remains RBI’s foremost priority: Governor Sanjay Malhotra

RBI Governor Sanjay Malhotra dismissed concerns that the inflows merely represent a recycling of existing deposits, stressing that the RBI has adequate tools to manage any resulting liquidity. | Photo Credit: Umesh Goswami

The Reserve Bank of India’s recent measures to attract foreign capital have garnered strong investor response, with banks mobilising nearly $32 billion, largely through FCNR(B) deposits, while government securities have attracted more than $7 billion in foreign inflows since the June policy measures, RBI Governor Sanjay Malhotra has said.

In an interview with businessline, Malhotra dismissed concerns that the inflows merely represent a recycling of existing deposits. He added that the RBI has adequate tools to manage any resulting liquidity. The inflows have strengthened India’s external position amid heightened geopolitical uncertainty and volatile global capital flows.

Responding to concerns over the RBI bearing the hedging cost of fresh FCNR(B) deposits and offering concessional forex swaps for external commercial borrowings (ECBs) by public sector entities, Malhotra said: “It is not something which should be a matter of concern because we have a foolproof system of insuring ourselves. So, whatever dollars we get, the excess foreign currency is invested in foreign assets. The risk, therefore, is not there.”

Pressure on the currency has largely stemmed from geopolitical tensions, dollar strength and broader volatility across emerging markets, Malhotra said. | Photo Credit: Umesh Goswami

The Governor said the measures should be viewed in the context of challenging global conditions facing emerging markets and are expected to further strengthen India’s balance of payments and currency stability.

Malhotra also sought to reassure markets on the rupee, arguing that recent depreciation does not reflect any weakness in the country’s economic fundamentals. According to him, pressure on the currency has largely stemmed from geopolitical tensions, dollar strength and broader volatility across emerging markets.

“We do not target any specific exchange rate or band for the rupee. Our intervention, whenever necessary, is targeted to curb excessive volatility,” he said, adding that the currency is “not overvalued” and could even be considered undervalued in both nominal and real effective exchange rate terms.

He pointed to a current account surplus during April-May, robust services exports, resilient remittance inflows, rising merchandise exports and improving foreign direct investment flows as indicators of external sector strength.

On forex reserve management, Malhotra said the RBI continues to be guided by the principles of safety, liquidity and returns, while reviewing reserve deployment periodically.

Turning to monetary policy, the Governor reiterated that inflation control remains the RBI’s foremost priority even as it remains mindful of growth risks. He said the monetary policy committee (MPC) would continue to adopt a data-dependent approach while navigating the evolving growth-inflation trade-off.

“Our primary mandate is inflation and price stability. Therefore, we will do whatever is required first, to keep price stability and then, to see to what extent we can support growth,” he said.