India's central bank governor said it is too early to consider raising interest rates, citing ongoing global uncertainty and the unclear potential for second-round inflation effects, in remarks made during an interview with ET NOW on Wednesday.
Governor Sanjay Malhotra said discussing rate increases at this stage would be "premature" and explained that, should the Reserve Bank decide to ready markets for tighter monetary policy, the first step would be to shift the policy stance from neutral to restrictive. He emphasized that policy decisions will remain firmly data-dependent.
Malhotra identified both monetary and external uncertainties as continuing concerns for the central bank, while noting that the easing of tensions in West Asia represented a meaningful positive development for the outlook. He said he had not observed broad-based inflationary pressures and that upside risks to inflation had, in his view, moderated. Nonetheless, he cautioned that the extent of second-round effects stemming from recent price shocks remained uncertain.
On currency policy, Malhotra reiterated that the RBI does not target a specific exchange rate and that market forces should determine the rupee's level. He noted that interventions in the foreign-exchange market have been aimed at ensuring orderly volatility rather than fixing the currency at any particular level.
Recent market moves have seen the USD/INR pair trade about 0.3% higher on Monday, near 95 rupees. The rupee weakened in recent sessions after an earlier sharp rise that followed measures introduced by the central bank.
Malhotra said that measures implemented to attract dollar inflows have met with an encouraging initial response and that sizeable capital inflows are expected. He added a note of caution, however, saying that foreign inflows tied to capital markets could moderate if equity valuations experience a modest pullback.
Summary
The RBI governor said rate hikes are premature amid global and domestic uncertainties, highlighted the conditional nature of future policy moves, reiterated a non-targeted approach to the rupee, and described recent FX measures as aimed at orderly market functioning while attracting dollar inflows.