Speaking to ET Now, Malhotra said the central bank’s decision earlier this month to retain its policy stance at “neutral” reflected the uncertainty surrounding the economic outlook.
“If we wanted to prepare the market for rate hikes, we would have changed stance from neutral to restrictive,” Malhotra said. “We did not do that precisely because there is elevated uncertainty.”
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His comments come as global oil prices have eased following a ceasefire between Iran and Israel and ongoing diplomatic efforts involving the United States and Iran. Lower crude prices offer relief to India, which imports about 90% of its oil requirements.
However, the RBI chief cautioned against drawing conclusions too quickly.
“The truce itself is fragile. It will take some time for the supplies to restore fully,” Malhotra said. “Upside risks have certainly reduced, but we’ll have to still wait and watch as to where crude prices ultimately end up.”
The RBI’s Monetary Policy Committee (MPC) kept the benchmark repo rate unchanged at 5.25% during its June 3-5 meeting and retained the policy stance at neutral. Minutes of the meeting showed policymakers expected the economic outlook to improve after hostilities in the Middle East ended.
Malhotra said the central bank remains focused on inflation risks, particularly any broader impact from higher energy prices.
“We do not see signs of inflation generalizing yet,” he said, adding that the MPC would take decisions on rates “meeting by meeting.”
The governor said policymakers are closely monitoring both crude oil prices and the progress of the monsoon season.
Also Read: RBI MPC minutes- Policy misstep fears drove rate pause amid West Asia uncertainty
“Both are uncertain, both have consequences for inflation so we’ll be watching both,” Malhotra said.
On the external sector, Malhotra said the recent de-escalation of tensions in West Asia was a positive development.
“Currency, external uncertainty is what we are all concerned about. De-escalation in the West Asia is a big positive,” he said.
Commenting on measures taken to support the rupee, the RBI governor said the initial response had been encouraging.
“Initial response to steps taken to support the rupee has been ‘good’. RBI expects ‘healthy flows’,” he said.
Malhotra also said foreign exchange market movements had remained orderly after steps were taken to curb speculative activity.
On India’s debt market, he said inclusion of Indian government bonds in global benchmarks would be beneficial.
“It will be good if Indian bonds are included in Bloomberg or any other index,” Malhotra said, adding that further measures to ease investment flows were being planned.
The governor also said India’s foreign exchange reserves provide adequate comfort.
“RBI’s foreign exchange reserves currently offer adequate comfort,” Malhotra said, noting that the reserve management strategy is based on the principles of safety, liquidity and returns. He added that gold holdings within the reserves serve the objectives of safety and liquidity.