RBI Governor Calls Rate Hike Discussions ‘Premature’ Due to Geopolitical Uncertainty
NEW DELHI: Reserve Bank of India Governor Sanjay Malhotra has dismissed speculation about an imminent interest rate hike, labeling such discussions as “premature.” He cited the fragile truce between the US and Iran and the resulting uncertainty around oil prices as key factors influencing the decision. Malhotra emphasized that the central bank’s stance remains neutral due to elevated uncertainties in the market.
Malhotra’s remarks follow a significant drop in crude prices after the US-Iran deal, which has provided some relief to India, a country that relies on imports for 90% of its oil needs. However, he cautioned that the truce is delicate and that it will take time for oil supply to stabilize fully. “The truce itself is fragile. It will take some time for the supplies to restore fully,” he stated, adding that while upside risks have diminished, the ultimate trajectory of crude prices remains uncertain.
Policy and Economic Outlook
The RBI’s Monetary Policy Committee (MPC) unanimously decided on June 5 to maintain the repo rate at 5.25%, following a cumulative rate cut of one percentage point since February 2025. The committee has revised its GDP growth forecast for FY27 down to 6.6% from 6.9%, while increasing its inflation projection to 5.1% from 4.6%. Minutes from the June meeting indicated that rate-setters anticipated a quick economic recovery once the conflict subsided. Following the truce, Citigroup economists retracted their earlier predictions for rate hikes this financial year.
Malhotra noted that the MPC is closely monitoring two critical variables: the monsoon and crude prices. Both factors carry significant implications for inflation. As of June 22, India’s cumulative monsoon rainfall was reported to be 43% below normal, raising concerns about agricultural output and rural demand. While the governor assured that India has sufficient food buffers, he stressed the need for vigilance. The rupee, which recently hit a record low of nearly 97 per dollar, remains subject to market forces, but the RBI is prepared to intervene against excessive volatility.
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