Reserve Bank of India Governor Sanjay Malhotra has said interest rates are likely to remain low for a “long period” as India continues to post strong economic growth, which could receive an additional lift from trade agreements currently being negotiated with the US and Europe.
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Malhotra said the rate cuts carried out during his tenure had helped engineer a “Goldilocks phase” of brisk growth with low inflation. The RBI’s projections suggest rates “should remain low for a long period of time,” Malhotra told the London-based Financial Times in an interview.
On December 5, the RBI cut the repo rate by 25 basis points (bps) to 5.25 per cent, a move likely to bring down lending and deposit rates across the banking system. With this cut, the repo rate has been reduced by a cumulative 125 bps — from 6.50 per cent to 5.25 per cent — since Malhotra took charge in December 2024.
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“We are in a Goldilocks phase,” Malhotra said, referring to strong growth with low inflation. “Inflation is well below the lower end of our target range. Growth will moderate but remain robust. The last GDP number was surprising,” he told the FT.
A Goldilocks period in economics refers to a phase when the economy is “just right” — neither overheating nor slowing down. It is characterised by steady growth, low inflation and manageable interest rates.
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Malhotra admitted that the most recent headline GDP figure “was surprising” and said the RBI — which had predicted 7 per cent year-on-year growth in the July–September quarter — needed to “improve our forecasting”.
When asked whether issues with the data made the RBI’s job more difficult, Malhotra said: “Some margin of error will always be there because these figures do get revised.”
India’s retail inflation rate stood at 0.71 per cent in November, well below the 2 per cent lower limit of the RBI’s target range. However, the central bank has forecast inflation will rise to 2.9 per cent in the January–March quarter.
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The RBI currently expects year-on-year GDP growth to moderate to 6.7 per cent in the three months starting April 2026, from 8.2 per cent in the July-September quarter.
Malhotra became Governor at a time when the RBI had retained higher interest rates despite slowing growth, with inflation often close to — and in October 2024 even above — the bank’s upper target limit of 6 per cent. Since then, the governor has moved aggressively. Over the past year, the RBI has delivered cumulative rate cuts of 1.25 percentage points, marking India’s first reductions in five years.
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