RBI governor: Reserve Bank of India (RBI) Governor Sanjay Malhotra on Monday stated that there is scope to reduce policy interest rates further, hinting at a potential shift in the central bank’s upcoming monetary policy stance. In an interview, Malhotra noted that the message from the October Monetary Policy Committee (MPC) meeting was unambiguous.
“At the last MPC meeting in October, it was communicated clearly that there is room to cut policy rates,” he said.
He added that fresh macroeconomic indicators have not altered that assessment. “Since then, the macro-economic data we have received has not indicated that the room to lower rates has decreased. There is certainly room, but whether the MPC takes a call on that in the coming meeting or not depends on the committee.”
The MPC had already reduced policy rates by 100 basis points in the first half of 2025, but has held rates steady since August.
Inflation At Record Low Strengthens Case For Easing
Minutes of the October MPC meeting showed that several members believed there was scope for further rate cuts as India’s inflation outlook continues to soften.
India’s retail inflation fell sharply to a historic low of 0.25% in October, driven by a steep decline in food prices and tax reductions on consumer goods. With inflation well below the target range, expectations of a rate cut at the December policy review have grown stronger.
Bond markets reacted modestly to the Governor’s remarks. India’s 10-year benchmark bond yield eased slightly, reflecting optimism over potential policy easing. However, overnight indexed swap (OIS) rates, which closely track market expectations for future policy moves, still signalled a status quo, despite economists widely anticipating a rate reduction.
Rupee Depreciation ‘Natural’, Says Malhotra
Governor Malhotra also addressed concerns over the rupee’s recent slide, calling the depreciation a natural adjustment in line with long-term trends.
He further noted that while the RBI steps in to curb excessive volatility, an annual depreciation of 3% to 3.5% remains consistent with historical patterns.
The rupee fell to a record low of 89.49 on Friday, pressured by portfolio outflows and rising concerns over trade tensions with the United States. The currency has weakened by a little over 4% this year, placing it among the worst-performing Asian currencies in 2025.
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