RBI Repo Rate Cut: Inflation & Economic Outlook

Mumbai, Dec 5 (PTI) Reserve Bank Governor Sanjay Malhotra on Friday said that the policy repo rate will continue to be "low" till the inflation remains benign.

Speaking to reporters at the RBI headquarters after announcing a 25 basis points cut in the repo rate to 5.25 per cent, he declined to specify the level to which the repo rate can go to but added that the RBI's inflation estimates point to benign numbers.

"Going forward, we expect benign inflation and so if the inflation continues to be the way it is, we expect the policy rates to be low and not high," Malhotra said.

The RBI will be data-driven going forward, and it will be "speculative" to speak about what decisions the six-member rate setting panel takes in the subsequent policy reviews, he added.

When asked if an inflation print as low as the ones seen recently are right for an emerging economy like India, Malhotra said it is "certainly not" so.

"0.2 per cent is not the right level of inflation. We target 4 per cent. So, it is that kind of inflation that we try to achieve," he added.

The Governor, however, also advised that one must not take the low inflation print seriously, pointing out that there can be fluctuation or volatility in the number as various factors can influence it.

A high base driven by high food prices is resulting in the headline inflation print coming lower, he said.

On growth, he said the RBI expects a softer GDP expansion in the second half as compared with the 8 per cent seen in the first half of 2025-26.

Some of the softness in the growth may come from the tariff-related issues, Malhotra said, stressing that the overall contribution of the impacted sectors like gems and jewellery, textiles and shrimps is very limited in the overall economic activity.

He added that the US tariffs have had a minimal impact on the Indian economy because the economy is driven by domestic demand.

The rupee depreciation has a benefit from a growth perspective as it helps exporters book higher rupee revenues, Malhotra said, adding that a 5 per cent depreciation in the rupee against USD pushes up growth by 0.25 per cent and adversely impacts inflation by 0.35 per cent.

In comments that came after the rupee breached the psychologically important 90-to-a-dollar mark, Malhotra said the RBI has assumed the rupee to be at "current levels" while making its forward looking estimates.

Meanwhile, when asked if the nominal GDP numbers were taken into account and if the same led to the rate cut decision, Malhotra replied in the negative and added that the RBI always takes into account the real GDP which is arrived at after subtracting the inflation from the nominal growth.

Going ahead, the RBI will concentrate on the transmission of its policy moves into the lending rates in the economy, Malhotra said.