India's central bank is considering cutting interest rates again this year, with inflation slowing sharply and growth remaining on track, Reserve Bank of India Governor Sanjay Malhotra said in an interview.
Key Highlights
- India’s consumer inflation dipped to 2.10% in June, triggering room for further RBI rate cuts.
- Governor Malhotra emphasised the MPC's neutral stance enables future rate cuts if inflation forecasts remain soft.
Malhotra stated that the RBI expects full-year inflation to remain below 3.7%, well below the midpoint of its 2-6% tolerance band. Retail inflation fell to a six-year low of 2.10% in June, owing to lower food prices, according to newly released data.
"We're in a neutral stance, which means we can move in either direction depending on the outlook, not just the current data," Malhotra explained, emphasizing that the MPC will consider both inflation and growth before making its next move. "One cannot say inflation is more important than growth, it's always the mix of both factors."
The RBI has already reduced interest rates twice in a row, including a surprise cut of 50 basis points in June. Many expected the central bank to pause in August, but the sharp drop in inflation may have changed the picture. The next MPC meeting begins on August 4.
"Price stability is our core objective," Malhotra said, adding that the RBI examines the composition of inflation, including momentum and base effects, rather than just the headline figure.
Lower lending rates may boost both consumption and investment. "There has been a transmission of 24 basis points on new loans and 16 basis points on outstanding loans in the three months leading up to May 2025," he said.
"If inflation is lower and the forecast is lower, or if growth is lower, policy rates can be cut," according to Malhotra.
He noted that rural consumption remains strong and expressed optimism about a potential trade agreement between India and the United States. Current growth estimates are at 6.5%, which is consistent with the RBI's most recent projections.
Also Read: India's WPI Inflation Falls to 0.39% in May; Lowest Level in 14 Months
"There are mixed signals but they're aligned with our expectations," he added. "The monsoon is favourable, optimism in consumer surveys is high, trade deals are ongoing, we will continue to review our growth projections."
The Governor also stated that the RBI is reviewing bank ownership norms. While foreign banks are currently allowed to own up to 26% of Indian banks, Malhotra suggested that this cap be reconsidered.
"Not allowing foreign banks to own a 26% stake in Indian banks defies logic," he said, adding that the requirements could be reconsidered if formal requests are received. He did, however, rule out issuing bank licences to corporations.
