Reserve Bank of India Governor Sanjay Malhotra signals data-driven policy stance as inflation remains tame and economic growth holds firm, with durable liquidity support for markets assured.

Reserve Bank of India (RBI) Governor Sanjay Malhotra has underscored that future interest rate decisions will be determined by evolving economic growth and inflation dynamics, highlighting a measured and data-dependent approach in the face of shifting domestic and global conditions.

Addressing reporters and analysts recently, he reiterated the central bank’s readiness to provide durable liquidity to all markets to ensure financial stability and effective policy transmission. The remarks come against a backdrop of subdued inflation – with retail prices at 2.75 per cent in January under a new consumer price index (CPI) series and a robust growth outlook that has kept the RBI’s policy stance in a neutral position.

Inflation remained benign despite switching to a new CPI base year, which broadens coverage and better reflects household consumption patterns, the Governor noted.

The central bank’s recent Monetary Policy Committee (MPC) meeting in early February saw policymakers hold the policy repo rate unchanged, signalling a continued pause in rate action while data is assimilated and risks assessed.

Growth projections remain strong, and inflation has stayed within the RBI’s tolerance band, giving policymakers room to prioritise financial stability and liquidity management. As Malhotra emphasised, while the fundamentals appear sound, any shift in interest rates will depend on how growth and inflation evolve in the coming months.

Growth Resilience and Subdued Inflation Underpin RBI’s Cautious Approach

Recent economic indicators have offered a picture of resilience in India’s macroeconomic landscape, enabling the central bank to maintain a steady policy course. According to the new CPI series which uses 2024 as the base year and broadens the price basket retail inflation was 2.75 per cent in January, still comfortably within the RBI’s tolerance range of 2–6 per cent.

This moderated inflation readout, combined with an optimistic growth outlook, provides the RBI with room to adopt a neutral stance on interest rates for now.

Governor Malhotra highlighted that the new CPI series will more accurately reflect consumption patterns and lower volatility in inflation estimates, thereby improving the quality of data guiding monetary policy decisions.

He explained that changes in methodology, coverage, and representation of goods and services could impact inflation metrics, and suggested that updated projections with the new series will be released in the RBI’s forthcoming policy review in April.

The MPC’s February minutes showed that most policymakers view current interest rates as appropriate given strong economic activity and benign inflation prospects. Growth forecasts for the year ahead remain robust, with estimates pointing to expansions in the range of 6.8 per cent to 7.2 per cent.

However, some MPC members indicated that future rate adjustments, including possible cuts, could be determined once new economic data including fresh GDP estimates becomes available.

Adding to the stability narrative, the RBI has been closely watching developments in the banking sector, including a ₹590 crore fraud at IDFC First Bank, which Malhotra said does not pose a systemic risk. His comments indicated confidence that institutional safeguards and oversight mechanisms remain robust.

Liquidity Support and Policy Transmission Take Centre Stage

In his discussions with media and market participants, Malhotra reiterated that the RBI is committed to providing durable liquidity a form of liquidity deemed stable and long-term across markets to ensure smooth functioning of financial systems.

This pledge reflects a broader strategy to support credit flows and market confidence even as interest rates remain on hold. Durable liquidity measures typically involve open market operations, term repos and other facilities designed to address enduring funding needs rather than short-term cash fluctuations.

Analysts have noted that liquidity support can help strengthen monetary policy transmission, particularly when inflation is under control and growth has momentum. A report cited by financial markets suggests that the RBI may maintain its pause on rate changes well into the next fiscal year, bolstered by low core inflation and a stable growth outlook.

Such a stance underscores the central bank’s focus on ensuring that policy actions have the desired impact on lending, borrowing costs, and investment decisions across the economy.

Malhotra’s remarks also come amid discussions on the future of India’s inflation targeting regime, with the RBI reviewing whether the CPI target of 4 per cent should be maintained under the new series. He indicated that any revision to the inflation target would be carefully considered, but that the underlying objective of price stability remains central to RBI policy.

Retrieved Lessons and Broader Policy Context

The RBI’s recent policy trajectory has reflected a balancing act between supporting growth and maintaining price stability in an environment shaped by global headwinds and domestic opportunities.

In 2025, under Malhotra’s leadership, the central bank cut the repo rate several times to boost liquidity and stimulate demand. Earlier cuts brought the rate down to record lows, after which policymakers chose to adopt a cautious pause while assessing evolving macro conditions.

Today’s policy reflects the RBI’s broader recognition that while inflation pressures remain muted and economic growth is strong, maintaining financial stability and ensuring the smooth transmission of monetary policy are equally critical.

The neutral stance allows flexibility to pivot if incoming data warrants action whether that means pausing, tightening, or loosening policy in the coming cycles.

The Logical Indian’s perspective

In an economic environment that affects millions of citizens from small businesses seeking credit to families navigating costs of living an independent and transparent central bank stance is essential. The RBI’s emphasis on data-driven decision-making and its pledge to ensure stable liquidity instil confidence, not just in markets but in everyday financial life.

It is equally important that policymakers communicate clearly about the implications of new statistical measures, such as the updated CPI series, so that ordinary Indians understand how their cost of living and inflation targets are being measured.

We believe that monetary policy should remain anchored in fostering inclusive growth while safeguarding price stability a balance that benefits all segments of society, particularly the vulnerable.