RBI signals prolonged low interest rates; possible further cuts

Reserve Bank Governor Sanjay Malhotra said on Friday that key policy interest rates are likely to remain low for an extended period and could be reduced further if conditions warrant.

His comments came a day after the central bank left the repo rate unchanged at 5.25 per cent at its bi-monthly monetary policy review, while maintaining a neutral policy stance.

Speaking at the post-policy press conference, Malhotra said, “Policy rates will continue to remain at low levels for a long period of time and may go down even further,” though he stressed that any decision on rate changes would ultimately be taken by the Monetary Policy Committee (MPC).

The Reserve Bank of India has cut the repo rate by a cumulative 125 basis points since February last year. Malhotra noted that while transmission of policy rates to lending has been relatively smooth, transmission on the deposit side has been slower. He added that fixed deposit interest rates are expected to decline further.

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Commenting on the impact of recent trade agreements signed by India, the governor said these, along with other supportive factors, could add up to 20 basis points to the country’s gross domestic product growth. Earlier in the day, the RBI revised upwards its GDP growth projections for the first and second quarters of the next financial year.

Deputy Governor T Rabi Sankar said at the briefing that the central bank was confident of managing the government’s borrowing programme without difficulty. The government has projected gross borrowing of ₹17.2 lakh crore for the next fiscal year, with net borrowing estimated at ₹11.73 lakh crore.

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Malhotra said the use of Treasury bills would help manage the yield curve and enable the government to raise its planned net borrowing at reasonable rates.

On the Union Budget’s announcement related to data centres, the governor said the move was expected to attract significant foreign investment. He also noted that currency in circulation had increased substantially over the past year.