NEW DELHI: Reserve Bank of India Governor Sanjay Malhotra has pushed back against expectations of an imminent interest rate hike, saying it is “premature” to discuss tightening given the fragile truce between the US and Iran and the uncertainty it creates for oil prices.“If it was so certain that we are going to hike in the coming months, then we would have changed the stance from neutral to restrictive, right? We did not do that,” Malhotra said in an interview with ET Now on Wednesday. “We did not do that precisely because there is elevated uncertainty.”The governor’s comments come as crude prices have dropped sharply following the US-Iran deal, offering relief to India, which depends on imports for 90 per cent of its oil needs. But Malhotra cautioned that the truce is fragile and it will take time for supply to normalise.“The truce itself is fragile. It will take some time for the supplies to restore fully,” he said. “Upside risks have certainly reduced, but we’ll have to still wait and watch as to where crude prices ultimately end up.”
Policy and economic outlook
The RBI’s Monetary Policy Committee voted unanimously on June 5 to hold the repo rate at 5.25 per cent, after cutting rates by a full percentage point since February 2025. The committee revised its GDP growth forecast for FY27 down to 6.6 per cent from 6.9 per cent, while raising its inflation projection to 5.1 per cent from 4.6 per cent.Minutes from the June meeting showed rate-setters believed the economy would improve quickly once the war ended. Following the truce, economists at Citigroup dropped their earlier call for rate hikes this financial year.Malhotra said the MPC is monitoring two key variables: the monsoon and crude prices. “Both are uncertain, both have consequences for inflation,” he said.India’s cumulative monsoon rainfall is 43 per cent below normal as of June 22, raising concerns about agricultural output and rural demand. The governor said India has sufficient food buffers but policymakers will stay watchful.The rupee, which hit a record low of nearly 97 per dollar last month, remains market-determined, Malhotra said, but the RBI is ready to act against excessive volatility. The central bank has already taken steps to support the currency, including allowing banks to raise foreign-currency deposits, easing investment rules and offering tax incentives to boost foreign inflows.India is hopeful of securing inclusion in the Bloomberg Aggregate Bond Index, which could support capital inflows, he added.Yields on India’s 10-year benchmark government bonds slipped two basis points to 6.85 per cent after Malhotra’s comments. The rupee was down 0.1 per cent at 94.85 to the dollar.