Focus now on policy rate cut transmission: RBI Governor

Following cumulative reductions of 125 basis points in the benchmark policy repo rate under his tenure, RBI Governor Sanjay Malhotra emphasized the need to ensure broader market transmission of these adjustments. At a post-Monetary Policy Committee (MPC) briefing, Malhotra addressed the central bank’s stance on rupee depreciation, inflation objectives, and efforts to repatriate overseas gold reserves. Key highlights:

Does the reduced inflation projection create room for additional growth-supportive measures?

Our current position remains neutral. Inflation levels have remained subdued around 3-3.5% over the past two years when excluding volatile food components. Future projections, excluding gold and silver, also suggest continued moderation. While further policy adjustments remain speculative, our immediate priority lies in fostering the transmission of the recent 25-basis-point rate cut. As inflationary pressures stay contained, we will monitor economic indicators before considering additional steps.

Is the rupee undervalued? How does the RBI approach currency depreciation?

The RBI maintains no specific exchange rate targets. Market forces primarily dictate currency valuations over the long term, as evidenced by the rupee’s rebound from ₹88 to below ₹84 per dollar earlier this year. Our interventions focus solely on curbing excessive volatility. India’s robust external position—highlighted by ample reserves, manageable current account deficits, and strong capital inflows—supports currency stability.

Could subdued consumer demand be contributing to low inflation?

While headline inflation dipped to 0.2%, our target remains 4%. This temporary figure reflects base effects rather than persistent weakness. Underlying inflation trends, however, justify our rate reduction decision.

Will deposit rates decline following today’s repo rate cut?

High real interest rates resulting from low inflation warrant moderation in deposit rates. Although nominal rates appear low, savers currently benefit from elevated real returns. We anticipate some downward adjustment in deposit rates post-policy announcement.

Is the RBI actively relocating foreign gold reserves to domestic vaults?

Geographic diversification of reserves is standard risk management practice.

Fresh rupee loan rates have risen despite repo cuts. Are there transmission bottlenecks?

Recent lending rate increases stem from shifting portfolio compositions toward higher-yielding segments like unsecured and gold loans—not failed transmission. Our interest rate impact metric shows 79 basis points of pass-through. Regarding bond yields, spreads remain consistent with historical norms at current policy rate levels. Yield movements primarily reflect demand-supply dynamics, including past open market operations.

Published on December 5, 2025

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