Reserve Bank of India (RBI) Governor Sanjay Malhotra on Tuesday hinted that a further cut in the repo rate could be considered if inflation continues to remain benign or if there is pressure on growth.
The statement from the governor comes a day after consumer price index (CPI) inflation slowed to a 77-month low of 2.1 per cent in June compared to 2.82 per cent in May.
“The Monetary Policy Committee (MPC), as always, will factor in the evolving situation, the outlook and then, will take a call on what kind of a policy rate the economy needs. If the inflation is lower or the outlook (on inflation) is lower, or the growth is lower, certainly the policy rate can be cut. But that is something that we have to wait and watch,” Malhotra told CNBC TV18 in an interview on Tuesday.
He was replying to a question on whether lower-than-expected inflation in FY2026 opens up space for further rate cuts. The RBI’s has projected inflation to be at 3.7 per cent in FY26.
Malhotra said there was an expectation that inflation will not be 3.7 per cent, but lower than that. “That’s certainly on the cards. And if that happens, the monetary policy will have a look at it and take a call,” he said.
In the June policy, the RBI’s six-member MPC reduced the repo rate – the key policy rate – by 50 basis points (bps) to 5.50 per cent. Since February 2025, the repo rate has been reduced by 100 bps. In the policy, the MPC also decided to change the policy stance from accommodative to neutral. “We are in a neutral stance. This means that we can go in either direction. It gives us the flexibility to move upwards or downwards depending on what the outlook, more importantly, rather than the current data, which we have now only for Q1, is going to look like, going ahead,” Malhotra said on Tuesday.
When asked which of the factors – further moderation in inflation or lower growth – will trigger a rate cut, the governor said it will be a mix of the two.
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“One can’t really say that it is inflation which is more important than growth numbers. For us, as you are aware, we primarily look at price stability, which is our core mandate, and then we look at growth also. Both are equally important and I would not say that we would give more emphasis, as of now, to either numbers,” he said.
He said that transmission of policy rates was in progress. On new loans, a 24 basis point of transmission has happened by the end of May. On outstanding loans, a transmission of about 16 basis points has occurred.
Malhotra further said that the RBI is also examining if foreign banks can hold 26 per cent in domestic banks.
“We are already reviewing the policy. There is some ambiguity and we will try to bring in clarity in these guidelines. Foreign banks can certainly have 26 per cent stake, economic interest, voting and voting rights. There should not be any difficulty in them having up to 26 per cent stake in an Indian bank,” he said.
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When asked about his opinion on allowing conglomerates to have banking licences, Malhotra stated that “conducting financial business and real economic activities within the same group has a conflict of interest”.
