RBI Governor Sanjay Malhotra, in an exclusive interview with NDTV Profit’s Managing Editor Tamanna Inamdar, spoke on an array of topics concerning the Indian economy. He underlined the central bank’s independence, shed light on the inflation-management strategy, and clarified that the RBI has no red-line when it comes to the value of rupee.
Here are the key excerpts from the interview.
Q: Governor Malhotra, you’ve completed a little over a year at the Reserve Bank of India. Given the tariff wars, geopolitical and regional conflicts, many felt RBI rose to the occasion. How do you look at this period?
Governor: These have certainly been uncertain and challenging times, not just for India but for the world. Surprisingly, the global economy has shown resilience. This is partly due to stronger domestic economic frameworks that have been built over the years. Trade tariffs were not as severe as initially feared, and there was no large-scale retaliation.
India has stood out as a bright spot, growing at the fastest pace among major economies. That reflects our domestic demand-driven growth model. This uncertainty has also spurred reforms and deregulation globally, including in India. GST reforms have helped, and countries have increasingly moved towards regional and bilateral cooperation. While challenges exist, many have used this phase as an opportunity to improve.
Q: Looking back at RBI’s actions—125 basis points of rate cuts, deregulation, easing business for banks—how would you distil your vision for running India’s central bank?
Governor: Two things stand out. First, in these uncertain times, our policy decisions have been guided primarily by domestic growth and inflation dynamics. India’s economy is largely driven by domestic demand, which places us in a better position than export-dependent economies.
Second, inflation has been relatively benign, which allowed us to cut rates by 125 basis points. This was supported by the strength of the banking system, built over several years by banks, regulators and the government. That strength enabled us to give banks greater operational flexibility through deregulation.
Q: We’ve also seen record foreign inflows into the financial sector. What is your outlook on this trend?
Governor: These inflows are not the result of work done in one year. They reflect cumulative efforts over several years that have strengthened banks and NBFCs. Investors—both foreign and domestic—are attracted by the sector’s resilience and India’s long-term growth prospects.
Importantly, these are not hot money flows but long-term, patient capital. We have not changed any regulatory norms to attract this investment. The eligibility criteria remain unchanged. In 2025 alone, around $15 billion of committed or actual investments came into private financial entities, underscoring confidence in the system.
Q: Do you expect more such inflows going forward?
Governor: India’s growth story remains intact. We grew 8% in the first half, are projected at 7.4% this year, and around 7% next year. Capital demand will remain strong. Inflows may not be linear year-on-year, but overall, India should continue attracting quality investments across banking, technology and the broader economy.
Trade agreements such as EFTA and the New Zealand pact, along with large commitments from global tech firms like Amazon, Google and Microsoft, reinforce this outlook.
Q: Despite rate cuts and liquidity measures, why hasn’t private capex picked up sharply?
Governor: Credit growth is healthy—about 12% for bank credit and 13% including other sources. With nominal GDP growth around 8%, this is strong. Investments are also projected to grow nearly 8%.
What has changed is the nature of investment. It is shifting into newer sectors like renewable energy, defence and steel. Investment intensity has also fallen because investments are becoming more productive. In some sectors like power, we have moved from deficit to surplus. Overall, investment activity remains robust.
Q: The rupee has been volatile, nearing 90. Should Indians be worried?
Governor: Our exchange rate policy has been consistent. We do not target any specific level. Markets determine prices. RBI’s role is to ensure financial stability and curb excessive volatility.
India’s macro fundamentals are strong—high growth, low inflation, forex reserves of about $690 billion, and a manageable current account deficit. Over the long term, a depreciation of about 3–3.5% annually is natural, given India’s inflation differential with advanced economies.
Q: Has RBI intervened recently to defend the rupee?
Governor: We intervene only to curb excessive volatility. We do not defend any specific level, whether 90 or 91. Our objective is orderly movement, not price targeting.
Q: You’ve described India as being in a ‘Goldilocks’ phase. With inflation so low, is this ideal?
Governor: Inflation is currently low due to food price base effects and soft global commodity prices. This is largely a supply-side phenomenon. As base effects fade, inflation is already rising. Our projections show inflation moving towards 3–4%, which is a comfortable range.
Core inflation is also well-behaved. Overall, inflation is at a level we are comfortable with.
Q: Does this leave room for further rate cuts?
Governor: We are in a neutral stance. Decisions will be taken meeting by meeting, guided by growth and inflation dynamics and global uncertainties. We will remain nimble and act as required to support the economy.
Q: Bond yields haven’t fallen one-to-one with rate cuts. How do you view transmission?
Governor: We do not target yields. Yields have come down, especially at the shorter end. At the longer end, transmission is naturally weaker. Overall, transmission is still evolving, and we must recognise the limits of monetary policy.
Q: Are you satisfied with transmission at the retail level?
Governor: Transmission has been very good. Against 100 basis points of cuts, lending rates on fresh loans have fallen about 79 basis points. Deposit rates have also adjusted meaningfully. There is still room for further transmission following the latest cut.
Q: Consumer outreach seems to be a major focus area. Why is this important?
Governor: Consumers are our ultimate beneficiaries. Their satisfaction is the true test of our success. We’ve taken several steps—re-KYC drives, unclaimed deposits campaigns, faster grievance redressal, and simplifying processes for legal heirs.
We’ve digitised services, reduced unnecessary approvals, and ensured over 99.5% on-time delivery. Consumer protection will remain a core priority.
Q: Many people say inflation has fallen, but they don’t ‘feel’ it. Why?
Governor: Inflation has come down, both in official data and consumer surveys. Perceptions differ because consumption baskets vary across income groups and regions. Food inflation affects lower-income households more. Consumption patterns have also evolved, which is why MOSPI is updating the CPI base to 2024.
Q: Inflation targeting is under review. Should the 4% ±2% framework change?
Governor: That decision rests with the government. However, since the introduction of flexible inflation targeting, inflation levels have moderated significantly. While not the only factor, the framework has played an important role alongside government and supply-side measures.
Q: When people see the rupee at 90, they worry about India’s strength. What would you tell them?
Governor: The strength of an economy should not be judged solely by the currency level. Growth, inflation control, financial stability, forex reserves, investment and consumption matter more. On all these parameters, India is doing well. We will ensure stability and orderly movement of the rupee.
Q: Finally, as a central banker, how important is central bank independence?
Governor: Central bank independence is extremely important. Globally, we’ve moved towards preserving that separation from governments, and it is something that should be protected across jurisdictions.
Q: One message for 2026?
Governor: India’s future is strong. RBI will do whatever is necessary to maintain price stability while supporting growth. With ongoing reforms, India is well placed to continue doing well.
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