- We are neither dovish nor hawkish
- It’s out endeavor to bring inflation in line with target over the medium term
- Quite possible going forward that as tensions de-escalate that Rupee may strengthen
- Monetary policy transmission is more or less complete
The Reserve Bank of India left its benchmark repo rate unchanged at 5.25% today, with Governor Sanjay Malhotra stressing that policymakers remain focused on bringing inflation back to target rather than adhering to any predefined policy bias.
The remarks reinforced the message delivered in the policy statement, where the six-member Monetary Policy Committee voted unanimously to keep the repo rate unchanged and retain the policy stance at “neutral”. Such policy decision was widely expected.
The RBI’s decision comes at a time when several Asian central banks have moved in a more hawkish direction in response to higher energy prices and currency volatility. Policymakers instead opted to wait for greater clarity on whether the recent rise in oil prices will translate into broader inflationary pressures across the economy.
Malhotra noted that headline inflation has risen above the RBI’s 4% medium-term target largely due to higher fuel prices, while underlying price pressures remain contained. He reiterated the central bank’s “resolute” commitment to its inflation objective, signalling that future decisions will remain data dependent rather than guided by market expectations of either tightening or easing.
Despite the recent increase in headline inflation, the RBI lowered its average inflation forecast for the current fiscal year to 5.0% from 5.1%, while cutting its projection for core inflation to 4.3% from 4.7%. At the same time, policymakers modestly upgraded their growth forecast to 6.7% from 6.6%, citing continued resilience in domestic demand and robust credit growth.
Malhotra argued that broader economic conditions remain supportive. However, he warned that a weak monsoon, global trade uncertainty and geopolitical risks remain potential headwinds to growth. Asked about the rupee, Malhotra said it was “quite possible going forward that as tensions de-escalate, the rupee may strengthen”, highlighting the key role geopolitical developments continue to play in financial markets.
The RBI governor reiterated that the exchange rate will remain market determined, while the central bank stands ready to smooth excessive volatility and prevent disorderly market conditions.
Overall, the message from the RBI was one of patience rather than urgency. By rejecting both dovish and hawkish labels, Malhotra sought to stress that policy decisions will be driven by incoming inflation and growth data. For now, the central bank appears comfortable maintaining its neutral stance while monitoring the impact of energy prices, external risks and currency developments on the inflation outlook.
This article was written by Giuseppe Dellamotta at investinglive.com.