MUMBAI, March 2 - Interest rates in India are expected to stay "around this level or lower" for a prolonged period, provided there are no significant shocks, Governor Sanjay Malhotra said in an interview published on Monday.
In the remarks, the governor outlined several operational and macroeconomic points the Reserve Bank of India is monitoring and addressing:
- The RBI is working to bring the weighted average call rate into alignment with the policy repo rate.
- "With large surplus liquidity in the system, it (call rate) has recently moved below the policy rate, but it continues to remain within the corridor," the governor said.
- The rupee's exchange rate is set by market forces. Historically, the currency has tended to strengthen in the last quarter of a financial year, he noted.
- Current inflation is benign, and underlying inflation is expected to remain low going forward.
- The governor identified downside risks to the economy stemming from geopolitical tensions, geoeconomic uncertainties, and climate-related events.
- He described the Indian economy as resilient, with growth fueled by both consumption and investment.
- Gross foreign direct investment remains robust, although a rise in overseas direct investment and repatriation is affecting net FDI.
The comments reiterate the central bank's operational priority of narrowing the gap between short-term money market rates and the policy repo rate while characterizing the current macroeconomic backdrop as one in which inflation pressures are subdued and domestic demand and capital formation are supporting growth.
At the same time, the governor emphasized external and environmental risk factors that could pose downside threats to the outlook, and he pointed to market determination of the rupee and observable seasonal tendencies in its movement.
Clear summary
Sanjay Malhotra told a national newspaper that, barring shocks, interest rates should remain near or below current levels for an extended period. The RBI is focused on aligning the weighted average call rate with the policy repo rate amid surplus liquidity, while inflation is described as benign and growth is supported by consumption and investment. He also highlighted risks from geopolitical, geoeconomic and climate developments, and noted that gross FDI is strong even as net FDI is influenced by overseas investment and repatriation.