Indian economy strong despite shocks, says RBI Governor Sanjay Malhotra; signals interest rates will remain low for long

India’s economy remains very strong despite shocks like the conflict in West Asia, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday, expressing confidence that interest rates may remain low for long. 
 
The Reserve Bank’s monetary policy committee on Wednesday left its benchmark repo rate unchanged at 5.25 per cent, while also deciding to continue its “neutral” stance.
 
“We are in a neutral state. Possibility either way, anyways can’t be ruled out. So, it's quite possible that these low rates continue for a long time,” Malhotra told reporters in an interaction post the monetary policy announcement.
 
Through 2025, the MPC had reduced the benchmark rate at which it lends money to commercial banks by 125 basis points amid strong growth and benign inflation.
 
The recent US and Israel war on Iran led to a surge in oil prices and gas supply shortages, which raised inflationary and growth concerns. The hope is that the two-week ceasefire agreement by US and Iran and the promised opening of the Strait of Hormuz should hold and reduce the concerns in the coming days on energy import dependent countries like India.
 
Despite the shock, the Indian economy remains strong, pointed Malhotra.

ALSO READ: GST Council meeting may take place after state polls
 
“Structurally long-term macroeconomic fundamentals, because of various measures the government has taken, the RBI has taken, remain very strong and continue to drive growth on the one hand and keep price pressures contained,” he said.
 
The central bank expects India’s GDP to grow 6.9 per cent in the current financial year ending March 2026. While India will remain among the fastest among major economies, the growth expectations are lower compared to the 7.6 per cent GDP growth that India is expected to have clocked in 2025-26, as per the second advanced estimates released towards the end of February.
 
Meanwhile, CPI (consumer price index) inflation for the current financial year is projected by RBI at 4.6 per cent. While this will be within the targeted band of 2-6 per cent, it will be significantly higher than last year’s projection of 2.1 per cent.  
 
The RBI has considered oil at $85 per barrel for 2025-26 and $75 per barrel for 2026-27, while setting its projections.
 
Rupee concerns
 
The key concern will be around the rupee’s continued depreciation against the dollar, amid the surge in oil prices and massive sell-off by foreign portfolio investors. In March alone, the rupee declined by 4 per cent against the greenback.
 
The rupee fell to a record low below 95 to the dollar mark on March 30, but has since recovered some what. On April 8, the rupee strengthened47 paise to close at 92.59 against the dollar, following the ceasefire between US and Iran.

ALSO READ: Rate pause, rising risks: RBI walks tightrope in April policy review, say reports
 
Malhotra said the RBI’s foreign policy remained unchanged and intervention in the foreign exchange market is aimed at smoothening excessive and disruptive volatility without targeting any specific level or band for the exchange rate.
 
The central bank had recently announced various measures to shore up the rupee. Last week, it barred banks from offering rupee non-deliverable forward (NDF) contracts to corporate clients. However, Malhotra has clarified that the measure was only temporary and taken to prevent excess speculation by banks.  
 
“When there is excessive volatility, when there is excessive building up of positions, perhaps not helping in price discovery, such measures are taken. They are not signaling any structural change. These are not measures, which are going to remain there forever,” he said.
 
He stressed that in the longer term, they stood committed towards broadening and deepening the market and internationalization of the rupee.