RBI Governor Sees Rates on Prolonged Pause or Lower for a “Long Time”: Economic Times

The Reserve Bank of India expects the policy rate to remain at current levels, or lower, for an extended period, Governor Sanjay Malhotra said in an interview to The Economic Times, signalling a steady monetary stance amid easing inflationary pressures but heightened global uncertainty.

“We expect the policy rate to be at current level or lower for a long time, barring any shocks,” Malhotra said, adding that inflation is “looking benign” and underlying price pressures are expected to remain contained. However, he cautioned that the trajectory would depend on how growth-inflation dynamics evolve, noting that the global environment remains uncertain.

On capital flows, the Governor said foreign institutional investors tend to operate with shorter investment horizons and recent reallocations toward countries with artificial intelligence opportunities should not be interpreted as a reflection of India’s macroeconomic fundamentals. He emphasised that India is investing across all five layers of AI -- energy, semiconductor chips, infrastructure, large language models and applications , and will be an integral part of the AI-driven transformation.

Addressing concerns over banking liquidity, Malhotra dismissed worries about deposit growth lagging credit expansion. In absolute terms, both deposits and credit have risen by about ₹5 trillion over the past year, with deposits at roughly ₹250 trillion compared to credit of about ₹205 trillion. “It is not a matter of concern,” he said, reiterating that banks create deposits alongside credit expansion.

On non-banking financial companies, the RBI head ruled out granting them access to deposits on par with banks, citing differences in regulatory treatment and the absence of deposit insurance or central bank liquidity access. Instead, the RBI has permitted co-lending arrangements between banks and NBFCs to help lower borrowing costs.

Malhotra also underscored the importance of the Insolvency and Bankruptcy Code, describing it as a “major structural reform” that has strengthened recoveries and improved credit culture. Lenders, he said, must initiate resolution processes early to maximise value.

On the rupee, the Governor indicated that, following a period of depreciation, the currency is expected to remain steady barring external shocks, with the central bank focused on curbing excessive volatility.

Reaffirming confidence in the financial system, Malhotra said there is no systemic risk and that regulation and supervision remain robust. The RBI, he added, continues to grant banking licences and remains open to expanding the system while safeguarding stability.