RBI: After first rate-cut in 5 years, Malhotra says India can grow at 7% or more
Virendra Pandit
New Delhi: Afte announcing the first policy rate-cut in five years on Friday, Reserve Bank of India (RBI) Governor Sanjay Malhotra expressed confidence in India’s ongoing economic growth, and asserted that a 7 percent or higher gross domestic product (GDP) growth rate is both achievable and should be a national aspiration.
The rate cut comes even as the Indian rupee continues to reel under pressure from global tariff wars. The INR has declined about 4 percent since US President Donald Trump’s election in November 2024. This depreciation has come amid global trade wars, with Trump slapping new tariffs on imports from Canada, Mexico and Canada and the latter retaliating with their own.
Amid this situation, Malhotra said, the growth-inflation dynamics in India opens up space to cut policy rate.
His remarks came during a press briefing after the Monetary Policy Committee’s (MPC) unanimous decision to cut the policy repo rate by 25 basis points, from 6.50 to 6.25 percent, the first rate adjustment in two years and the first reduction in five years, the media reported.
The RBI maintained its GDP projections for the financial year 2024-25 (FY25) at 6.6 percent and at 6.7 per cent for FY26. “At present, we are focusing on growth because inflation is down and will continue to go down.”
He reaffirmed that the RBI remains vigilant and proactive in managing liquidity and responding to macroeconomic shifts.
On inflation, the central bank chief clarified that while price stability remains the primary mandate under the RBI Act, the current economic conditions allow for greater support for growth. He emphasised that the RBI aims to align inflation with the 4 percent target.
The Consumer Price Index (CPI)-based inflation in December 2024 stood at 5.2 percent and the Wholesale Price Index (WPI) rose to 2.37 per cent in December, from 1.89 per cent in November 2024.
Malhotra underlined the RBI’s commitment to protecting consumers and bank security, stating that any mis-selling by banks will be taken seriously. He assured that the RBI will make every effort to assist in solving bank fraud cases, reinforcing its focus on financial security.
RBI Deputy Governor Swaminathan Janakiraman said many issues are resolved through dialogue with the central bank. The only actions that get publicised, however, are the “rarest of the rare” cases involving egregious violations. Outside of these, supervisors mostly engage with entities on a bilateral basis, and these types of interventions happen on an ongoing basis.
To ease regulatory burdens, Malhotra said the cost of compliance is always considered before implementing new rules. About the Liquidity Coverage Ratio (LCR) norms, the RBI will provide sufficient time for implementation to avoid market disruption.
On the expected credit loss framework, he said it remains in a discussion paper with no official draft released yet. Similarly, new project finance norms are expected to roll out by March 2026.
The RBI, in its MPC decision, announced the establishment of new web domains for both Indian banks and NBFCs to enable consumers to differentiate official sites from fraudulent ones.
Acknowledging global economic volatility, Malhotra noted its potential impact on India’s growth. However, he also highlighted positive indicators such as strong manufacturing activity, stable consumption trends, and healthy agricultural and reservoir levels, which boost optimism for India’s economic prospects.
While prioritising growth in the current environment, Malhotra maintained that the RBI’s stance remains neutral, ensuring policy flexibility to react swiftly to changing macroeconomic conditions.
The six-member MPC’s focus in its last meeting for FY25 was on aligning inflation with targets while supporting growth.
Retail inflation eased for the second successive month in December 2024 to a four-month low of 5.22 percent from 5.5 percent in November 2024. GDP growth in the second quarter of FY25 dipped to a seven-quarter low of 5.4 percent from 6.7 percent in the preceding quarter.
