RBI retains cautious stance, rules out premature rate hike discussion

Reserve Bank Governor Sanjay Malhotra on Wednesday said it would be premature to discuss a rate hike, stressing that the central bank remains in a “wait-and-watch mode” as it closely monitors developments in West Asia, crude oil prices and the monsoon.

“If we actually wanted to prepare them (market) for this (rate hike), then we would have changed our (stance)… if it was so certain that we are going to hike in the coming months, then we would have changed the stance from ‘neutral’ to ‘restrictive’, right? We did not do that,” he told ET Now.

“So, I think it will be premature to talk about a rate hike. What we have said is that we are cautious… we will continue to remain data dependent,” he said.

Earlier this month, the RBI kept the benchmark repo rate unchanged at 5.25 per cent and retained its “neutral” stance, citing risks to growth and inflation from geopolitical tensions and elevated energy prices.

Malhotra said the de-escalation of the West Asia conflict was a positive development for both the global and Indian economies, noting that crude oil and urea prices had eased. Stressing that the Indian economy remains resilient, he said, “The government and the OMCs together cushioned the impact of the energy shock to a great extent, and all high frequency indicators show that India has weathered the shock quite well in very uncertain times.”

“And as we said, in our monetary policy, we are in wait-and-watch mode. Let’s see how long this truce continues and better times ahead for all of us,” he added.

While upside inflation risks have moderated, the governor said the RBI was not yet ready to draw firm conclusions. “Upside risks have certainly reduced, but we’ll have to… wait and watch as to where crude prices ultimately end up,” he said.

On inflation, Malhotra said the central bank was closely tracking whether higher fuel costs spill over into the broader economy.

“We are not sure, frankly, as to whether we will have second-round effects or not. If you were sure, the monetary policy committee would have acted,” he said, adding that there is no evidence yet of inflation becoming generalised.