RBI remains focused on growth, financial stability, says Sanjay Malhotra; rate cuts to be data-driven

RBI Governor Sanjay Malhotra said on Friday that economic growth and the financial stability of the banking system remain the central bank's focus areas, and any rate decisions will continue to be data-driven. There is a system in place at the RBI that mandates consultation for taking any big decision, said the RBI governor. Even for internal decisions, the RBI welcomes constructive criticism to decide on any subject, he said at the FE BFSI Summit.

Data-driven discussions at MPC reviews

Reiterating that the MPC meetings are data-driven, the RBI chief said that inflation, markets, cybercrime, and distress in banking are the everyday concerns for the central bank.

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Inflation has eased to 3.1 per cent all the way from 7.2 per cent, said Malhotra.

Consumer inflation in the country--gauged by the Consumer Price Index--was recorded at 3.1 per cent in April, easing from 7.2 per cent in July 2023. It cooled further subsequently to a six-year low of 2.10 per cent in June.

RBI victorious against inflation, battle will continue

The RBI governor stated that the central bank has won its fight against inflation.

It will continue its efforts to keep inflation under control, he said.

Malhotra mentioned two constant challenges for the RBI: price stability and banking regulations.

The central bank always strives to maintain growth while preserving financial stability, he said.

MPC has cut repo rate by 100 bps, MPC to remain focused on data

The RBI's MPC will continue to be focused on data for deciding on interest rates, he said.

Commercial banks are continuing to transmit rate cuts to their borrowers, with loan rates now reduced around 50 bps given the policy action until February, he said.

Rate transmission refers to how effectively and quickly changes to the benchmark rates are passed on by commercial banks to borrowers and depositors.

An efficient rate transmission means banks revise their loan rates in response to the RBI’s moves more rapidly. These changes impact home loans, auto loans, and deposits.

Over the years, slow and uneven rate transmission has been a challenge for the RBI, particularly in the pre-COVID period.

Every big decision is in light of macroeconomic conditions

The RBI takes all its decisions in view of the prevalent macroeconomic conditions, using a calibrated approach in each aspect, said the governor.

Asked if there will be more rate cuts going forward, Malhotra said that the RBI has "enough tools and ammunition" at its disposal, if needed.

In the current monetary policy cycle, the RBI has cut the repo rate--the key interest rate at which it lends funds to commercial banks--by 100 basis points since February. The MPC's policy stance stands at 'neutral', which enables it to act in either direction on the rate front.

The RBI Governor also reiterated that commercial lenders and their customers are benefitting from the cash reserve ratio (CRR) reduction. CRR is the proportion of cash that commercial banks have to keep in reserve with the RBI.