Low Interest Rates to Support India's Economic Growth

RBI Governor Sanjay Malhotra has recently shared insights on India's economic outlook, predicting that interest rates will likely remain low for an extended period. This decision aligns with the country's ongoing strong economic growth, which is further expected to be boosted by trade agreements being negotiated with the US and Europe.

During his term, Malhotra has implemented rate cuts that have contributed to what he describes as a "Goldilocks phase," characterized by brisk growth coupled with low inflation. According to him, the Reserve Bank of India's (RBI) projections indicate that interest rates should remain low for a significant duration, promoting overall economic stability.

On December 5, the RBI cut the repo rate by 25 basis points to 5.25%, which may lead to lower lending and deposit rates across the banking sector. Since Malhotra assumed office in December 2024, the repo rate has been reduced by a total of 125 basis points, a notable shift from the previous rate of 6.50%.

Malhotra emphasized that India is indeed experiencing a "Goldilocks phase," where the economy is performing optimally—neither overheating nor slowing down. With inflation currently at 0.71% in November, well below the RBI's lower target limit of 2%, the central bank anticipates a gradual rise in inflation to 2.9% by the January-March quarter.

The RBI has projected a moderation in year-on-year GDP growth, estimating it to be 6.7% in the April 2026 quarter, down from 8.2% in the previous quarter. Malhotra acknowledged that the recent GDP figures were surprisingly high, indicating a need for improved forecasting methods within the RBI.

Despite the challenges of fluctuating data, Malhotra remains optimistic about the economic trajectory of India. His aggressive approach to rate cuts marks a significant departure from the previous higher interest rate environment, aiming to stimulate growth and enhance lending opportunities across the country.

In conclusion, the RBI's strategy under Malhotra's guidance is expected to maintain an environment conducive to growth, keeping interest rates low and inflation manageable, thus supporting the overall economic framework of India.