Policy Stance And Liquidity

Governor Sanjay Malhotra said the Reserve Bank of India’s effort is to align the weighted average call rate with the policy repo rate, according to the interview published by The Economic Times on March 3.

He stated that with large surplus liquidity in the banking system, the weighted average call rate has recently moved below the policy rate but continues to remain within the liquidity adjustment facility corridor set by the Reserve Bank of India.

The governor did not indicate any immediate change in the policy framework and said rates would remain “around this level or lower” for a long time, barring unforeseen shocks, according to the newspaper.

Inflation And Growth

On inflation, Malhotra said price pressures are currently benign and underlying inflation is expected to remain low going forward, as reported by The Economic Times.

He added that the Indian economy remains resilient, with growth supported by both consumption and investment demand.

Official data released by the government on February 29 showed India’s gross domestic product grew 7.8% in the October–December quarter of FY24, while full-year growth for FY24 is projected at 7.6%, according to government estimates cited by The Economic Times.

Exchange Rate And External Sector

The governor reiterated that the rupee is market-determined. He noted that historically the currency has strengthened in the last quarter of a financial year, according to the interview.

On capital flows, Malhotra said gross foreign direct investment remains strong. However, he stated that higher overseas direct investment by Indian companies and repatriation of funds have affected net FDI flows.

He also flagged downside risks to the economy stemming from geopolitical tensions, geoeconomic uncertainties and climate-related events, as reported by The Economic Times.

The remarks indicate that the Reserve Bank of India intends to maintain its current rate stance while monitoring liquidity, inflation trends and external risks, with policy rates expected to stay around existing levels in the absence of major shocks.