Sanjay Malhotra, the new RBI Governor, has been serving as a bureaucrat for more than 30 years. Over the past two years, he has held the charge of revenue secretary in the finance ministry. (Photographer: Pallavi Nahata/NDTV Profit)
12 months ago
Feb 07, 2025
The Reserve Bank of India's Monetary Policy Committee will announce the key interest rate decision on Friday as the three day meet comes at an end. This is the first MPC meeting after the appointment of Governor Sanjay Malhotra and the re-designation of Rajeshwar Rao in the monetary policy department. This will be the second policy meeting for the three external members — Ram Singh, Saugata Bhattacharya, and Nagesh Kumar.
The movements in Rupee must not be looked at from day-to-day movements and seen at a longer time frame, RBI Governor said, adding that global uncertainties are a higher worry at this stage.
Governor Malhotra says,
The rate that the rupee settles is a function of demand and supply.
We should not be looking at day-to-day movements in the rupee or other asset classes like equity.
Should look at the long-term movement of the rate of the rupee.
Global uncertainties are a higher worry for RBI at this stage.
Global uncertainty has a direct impact on growth, investment, consumption.
Appreciation of the dollar and depreciation of the Rupee are linked to global uncertainty.
The less restrictive policy is "only for this particular MPC meeting", and the cost of regulations has certainly been a factor in implementing regulations in the past, RBI Governor Sanjay Malhotra said in a post-policy press conference on Friday.
Governor Malhotra says,
The less restrictive policy is only for this particular MPC meeting
The stance of monetary policy continues to be 'Neutral'
I do think that cost of regulations has certainly been a factor in implementing regulations in the past
I only made the point on cost of regulations very clear so that everyone is assured
Active collaboration between regulator, government, and law enforcement must work together to counter pesky calls, Deputy Governor Swaminathan said in the post-policy press conference on Friday.
Deputy Governor Swaminathan says,
Inconsistent behaviour by financial institutions is often addressed through bilateral engagement by RBI.
Dealt with entities directly in cases of non-compliance.
The Reserve Bank of India will extend a timeframe for the implementation of liquidity coverage ratio norms as the previous deadline did not provide enough time.
Governor Malhotra says,
Do not want to cause any disruption on account of new regulations.
New liquidity coverage ratio norms will not be implemented before March 31, 2026.
Implementation of new liquidity coverage ratio norms will be in phases.
Will need more time to implement project finance norms.
Will not introduce new project finance norms before March 31, 2026.
RBI Governor Sanjay Malhotra said in a post-policy press conference on Friday that India can achieve a growth rate of over 7% and that "we must aspire to that."
The primary objective as per the RBI Act mandate is to focus on inflation, Malhotra said. However, the current environment calls for a higher focus on growth but will remain also cautious on the inflation trajectory.
RBI has endeavoured to provide as much liquidity as required and has taken several steps to bolster liquidity, RBI Governor Sanjay Malhotra said in the post-policy press conference on Friday.
Governor Malhotra says,
Taking steps to bolster overnight and durable liquidity.
We are always watchful and will be nimble in providing liquidity.
Every statement, every word in the MPC statement is well crafted, thought out and deliberate.
The Reserve Bank of India's post-policy address began with the Governor kicking off by giving the rationale for the rate cuts after 2 years of status quo.
This is the first MPC meeting after the appointment of Governor Sanjay Malhotra and the re-designation of Rajeshwar Rao in the monetary policy department. This will be the second policy meeting for the three external members — Ram Singh, Saugata Bhattacharya, and Nagesh Kumar.
The MPC unanimously decided to cut the repo rate by 25 basis points to 6.25%. The standing deposit facility rate stands is adjusted to 6%, and the marginal standing facility rate and the bank rate stand adjusted to 6.5%.
The Reserve Bank of India estimated that real GDP growth for fiscal 2026 will come at 6.7%.
Core inflation is expected to rise but remain moderate. The FY26 retail inflation is to come at 4.2%, assuming normal monsoon.
The RBI will proactively take measures to ensure orderly liquidity conditions in the banking system, Governor Malhotra said, noting bank liquidity buffers are sufficient.
The global economic backdrop remains challenging, and the global economy is growing below historical average, Governor Sanjay Malhotra said.
"Don’t think the governor seems too worried about inflation...could see two more rate cuts if we see good monsoons," Keki Mistry of HDFC Banks said.
Addressing the growth outlook, Mistry remarked, “I think there will be a recovery... we may see a pickup in growth beyond RBI’s 6.7% forecast, obviously depending upon good monsoon and macroeconomic environment in the rest of the world not getting completely beaten down.”
The Monetary Policy Committee under the new governor Sanjay Malhotra decided to cut the repo rate by 25 basis points to 6.25%. The MPC voted unanimously to continue with 'neutral' stance.
The MPC will remain unambiguously focused to bringing inflation to target on durable basis, the governor said.
This cannot be called "dovish' as the governor did mention upside risks to inflation, according to Aditi Nayar, chief economist and head of research at ICRA.
This is a "pragmatic policy" and is in line with expectations. The rate cut cycle is expected to be very shallow going forward, she said."Not expecting more rate cuts; stance is better retained at neutral."
The Reserve Bank of India is treading carefully around forward guidance and "not sure if it's doveish or not," Katrina Ell, Director Economic Research at Moody's Analytics, said.
The rate cut is a positive development, but its a difficult balance as there's domestic demand, which needs the additional support and the really weak Rupee, Ell said. The central bank is prioritising working towards improving domestic demand over the next couple of months, she said. "This was anticipated by markets."
Surge in digital frauds is a matter of concern, and it warrants action by all stakeholders, RBI Governor Sanjay Malhotra said in its policy speech on Friday.
Governor Malhotra says,
Surge in digital frauds warrants action by all stakeholders.
Propose to extend additional factor authentication to offshore transactions having merchants with enabling infrastructure.
Urge banks to improve preventive detection methods to deal with cyber fraud.
RBI will proactively take measures to ensure orderly liquidity conditions for the system while urging banks to trade among themselves in the call money market, Governor Sanjay Malhotra said.
Governor Malhotra says,
Bank liquidity buffers are sufficient.
System liquidity as per LAF turned into deficit in December, January.
Liquidity deficit was due to advance tax payments.
Capital outflows took place for various reasons.
Forex operations and, pick up in currency in circular also contributed to liquidity deficit.
Some banks are hesitant to on-lend in the uncollateralised call money market.
Banks are passively parking funds with the RBI.
Urge banks to trade among themselves in call money market.
The current account deficit in FY25 will remain well under control, and the RBI's interventions in the forex market will focus on smoothening excessive and disruptive volatility, Governor Sanjay Malhotra said.
Governor Malhotra says,
India's external sector remains resilient.
The stated objective is to maintain orderliness and stability in rupee.
Our interventions in the forex market focus on smoothening excessive and disruptive volatility.
Interventions in the forex market do not target any level for the rupee.
To continue with extant policy on forex management.
The Reserve Bank of India estimated that real GDP growth for FY26 will come at 6.7%, Governor Sanjay Malhotra said in its policy speech on Friday.
First quarter growth is seen at 6.7% while the second quarter growth pegged at 7%. The GDP growth for the third and fourth quarters was estimated at 6.5% and 6.5%, respectively.
Governor Malhotra says,
Improving employment conditions, tax relief in Union Budget, with health agri activity bode well for household consumption.
Higher capacity utilisation, robust business expectations, and government support augur well for fixed investment.
Global headwinds continue to impact and pose a downward risk.
Global economic backdrop remains challenging and the global economy is growing below historical average, RBI Governor Sanjay Malhotra said in its policy speech on Friday.
RBI has been employing all tools to face multi-pronged challenges.
Excess volatility in global financial markets, continued uncertainties in global trade policies, pose risks to growth and inflation outlook.
MPC to remain unambiguously focused to bringing inflation to target on durable basis.
RBI and MPC will continue to improve macroeconomic outcomes, said RBI Governor Sanjay Malhotra in his policy speech, adding that, reassuring that all stakeholders that will continue with the consultative process.
Flexible inflation targetting framework was put in place in 2016
Will develop more robust models to manage monetary policy
To continue to strengthen, rationalise and refine prudential and conduct framework
Regulation to enhance stability and efficiency are not without costs
Will keep tradeoffs in mind while formulating every regulation
Recognise that there are no free lunches, regulation is not devoid of costs
Want to reassure all stakeholders that we will continue with the consultative process
Monetary Policy Committee resolution impacts the lives of all citizens of the country and will continue with the practice of detailed statements after each MPC meeting, Sanjay Malhotra said in his first address as the RBI Governor.
Governor Malhotra says,
Governor's statement has become important medium for RBI to highlight priorities.
Will continue with the practice of detailed statements after each MPC meeting.
Will continue with practice of detailed statement after each MPC meeting.
Interest rate-targeting framework is a monumental change in management of monetary policy in India.
Global funds have bought government bonds worth Rs 13,000 crore in the first six days this month, the highest since September 2023.
Under the fully accessible route, FIIs have bought gilts worth Rs 13,720 crore, according to the data from NSDL. Meanwhile, global funds have been a net seller of equity worth Rs 3,747 crore so far in February.
The NSE Nifty 50 and BSE Sensex opened with caution before Reserve Bank of India's Monetary Policy Committee announces its decision on India's benchmark repo rate.
Bharti Airtel Ltd., HDFC Bank Ltd. share prices contributed the most to the gain. As of 9:19 a.m., the Nifty 50 was trading 15.50 points or 0.07% down at 23,587.85, and the Sensex was trading 70.59 points or 0.1% down at 77,987.57.
The rupee breached a fresh low of 87 against the dollar amid US President Donald Trump's imposition of tariffs against Canada, Mexico and China.
How far can the rupee go? It will depend a lot on what the RBI will do, stated a note by Bank of Baroda. There is already some panic as importers are rushing in to book dollars, thus increasing demand.
While the buy-sell swap saw a good response, which drew out dollars from the system and induced liquidity last week, the puzzle is to manage rupee movements with liquidity because if dollars are sold, it will draw out liquidity.
"We do believe that a repo rate cut is on the cards soon, as the budget has done well to spur growth and with expectations of inflation to come down, this could be the right time," said Madan Sabnavis, chief economist at Bank of Baroda. "But the currency issue has popped up again, which can lead to some serious discussion," he cautioned.
