RBI Governor Sanjay Malhotra Signals Rates To Stay Low for a Long Period

Reserve Bank of India Governor Sanjay Malhotra expects benchmark interest rates to remain low for a “long period” owing to robust GDP growth, which is likely to strengthen further once India concludes trade pacts with the US and the European Union. Rates may also stay low due to the deflationary trend seen over the past few months.

In an interview with The Financial Times, Malhotra said rate cuts over the past year had helped engineer a “Goldilocks” phase of strong economic expansion alongside low inflation. The RBI’s Monetary Policy Committee has reduced the repo rate by 125 basis points cumulatively in 2025, bringing the benchmark rate down to 5.25% from 6.50% a year ago. According to the FT report, Malhotra said the central bank’s projections suggested rates “should remain low for a long period of time.” He reiterated that his twin priorities were maintaining financial stability and strengthening the financial system.

Deflationary Trend

India’s headline consumer price inflation came in at 0.7% in November, below the lower limit of the RBI’s 2%–6% target band. However, the RBI projects inflation to rise to 2.9% for the quarter ending March. The central bank also expects year-on-year GDP growth to moderate to 6.7% in the first quarter of FY27.

For the September quarter, India’s GDP expanded 8.2%, beating both market and central bank forecasts.

External Shocks

According to the FT report, Malhotra said the central bank’s economic projections had not yet factored in the potential impact of upcoming trade agreements, which are in the final stages of negotiation. Bilateral trade deals with Washington and the European Union are expected to further boost GDP growth.

“The impact of the US trade deal could be as much as about half a percentage point,” he said. Media reports suggest officials expect the final pact with Washington to be signed by early March 2026, while some anticipate a rollback of tariffs by year-end. The US imposed a 25% reciprocal tariff on India in August and later an additional 25% punitive tariff, taking total tariffs to 50%.

India’s relatively low export exposure compared to other Asian economies has helped limit the impact of these tariffs. New Delhi and Brussels are also hoping to finalise their bilateral trade agreement in the coming weeks.