Reserve Bank of India Governor Sanjay Malhotra said on Friday that the Monetary Policy Committee (MPC) will reassess growth and inflation dynamics at its meeting next month. Malhotra’s remarks come amid rising crude oil prices due to the ongoing crisis in West Asia following the US-Iran war.
About inflation
Reserve Bank of India Governor Sanjay Malhotra said inflation risks now exist “on both sides” and he is not ready to say which way they will go before the Monetary Policy Committee (MPC) meets again in October.
“I mean, there are risks on both sides… The MPC will reassess the growth-inflation dynamic when it meets in about a month. Let me reserve my assessment,” Malhotra told the newspaper in an exclusive interview. CNBC-TV18.
Malhotra said prices of food items such as sugar and onions have risen, but the increase has largely been factored into RBI’s forecasts due to insufficient rainfall, although crude oil remains a concern.
He added that rising crude oil prices will have an impact, but the extent will depend on exactly how much is spent.
“Oil is up. July averaged $82 billion for the Indian basket. It went up to $90 billion in August and that will certainly have some impact, but that will again depend on the pass-through effect. So far, the government has largely absorbed and cushioned this shock and as a result, you find that the Indian economy has weathered this shock really well,” he said.
Malhotra added that the government has largely absorbed and cushioned this shock; as a result, the Indian economy weathered the shock very well.
According to media reports, Governor Malhotra stressed that the RBI does not evaluate monetary policy based only on average inflation.
Instead, it looks at headline inflation, its composition, price paths, and core inflation. He said inflation is normalizing while core inflation remains low, although core inflation excluding precious metals is also rising and moving closer to target.
The Reserve Bank of India (RBI) governor said it will continue to monitor sustainability, inflation expectations and assumptions.
Malhotra also noted a separate, new pressure point: rising global bond yields, with US 10-year yields approaching 5 percent and G7 yields at multi-decade highs. When asked directly whether this would affect monetary policy, he answered.
“Well, obviously, yes, it does affect us.” In a separate message, he added that the impact would be felt “on both growth, inflation and interest rates.”
Malhotra said CNBC-TV18 that higher bond yields in other jurisdictions were driven by factors such as high budget deficits, elevated government debt, greater exposure to energy shocks and higher inflation expectations. While Indian bond yields also rose, he said the rise was much smaller.
Malhotra said all these factors would be taken into account at the next MPC meeting, but declined to offer his own assessment of the inflation outlook ahead of that review.
The next meeting of the Monetary Policy Committee (MPC), the RBI’s rate-setting panel, is scheduled for October 5-7, 2026.
By deposits FCNR(B)
In an interview with CNBC-TV18Malhotra said nearly 50 per cent of foreign currency non-resident (bank) deposits, or FCNR(B), mobilized under the currency swap facility are for a five-year tenure.
FCNR (B) deposit inflows stood at $127.22 billion under the recently concluded RBI swap facility.
The governor said the flows have certainly been “very resilient” and reflect the strong faith and confidence of investors around the world in India’s extremely strong macroeconomic fundamentals.
“At the same time, this shows that we can receive foreign flows, capital flows in a short period of time. This helps us in terms of financial stability, the sustainability of the external sector. We are quite pleased with the result,” he added.
Malhotra said strong flows helped stabilize forex markets.
“This has both given us liquidity and improved sentiment,” he said.
According to him, FCNR(B) deposits are predominantly concentrated in five-year tenure, which constitutes almost half of the total portfolio approximately (48.50-50 per cent).
The next largest segment, at about 42 percent, falls in the 3 to 4 year maturity category. The remaining share, about 9 percent, is for a term of office of 4-5 years.
Malhotra said the Reserve Bank has sufficient tools at its disposal to manage the current excess liquidity in the banking system and is ready to use them as and when required.
Some of the liquidity will be withdrawn on its own over a period of time, he added.