Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday expressed confidence that interest rates could remain low over the medium to long term, given the benign inflationary conditions and strong macroeconomic fundamentals. 

Speaking at the post-policy press conference, the Governor said the Indian economy remains “strong, resilient and robust,” adding that the current neutral policy stance allows room for movement in either direction. He indicated that the possibility of a prolonged low interest rate environment cannot be ruled out. 

Strong fundamentals to anchor growth, inflation 

Despite global shocks, the RBI has projected GDP growth at 6.9% for the current financial year. Malhotra said structural macroeconomic fundamentals, backed by coordinated efforts from the government, the central bank and other institutions, continue to support growth while keeping inflationary pressures contained. Both short- and medium-term conditions could remain conducive for relatively low interest rates, he said. 

RBI holds rates amid global uncertainty 

Earlier in the day, the Reserve Bank of India kept the benchmark repo rate unchanged at 5.25%, with the six-member Monetary Policy Committee (MPC) voting unanimously to maintain status quo. 

The decision reflects a cautious approach as policymakers assess the impact of the recent West Asia conflict on energy prices, inflation and growth. The central bank flagged heightened uncertainty following a surge in crude oil prices, rupee depreciation and disruptions to trade flows. 

Sanjay Malhotra noted that the recent ceasefire between the US and Iran has been factored into the policy assessment. 

The RBI has projected inflation at 4.6% for FY27, within its target band of 2–6%. GDP growth for the current year is estimated at 6.9%, lower than the 7.6% expansion expected in FY26. 

On monetary policy transmission, Malhotra said banks have passed on around 90 basis points of rate cuts on the lending side against a cumulative 125 basis points reduction in the repo rate. Deposit rates have also seen a moderation of over 100 basis points, indicating satisfactory transmission. 

Addressing recent measures in the currency market, he said these were aimed at curbing excessive volatility in the rupee and do not represent any structural shift in policy. 

Devang Shah, Head – Fixed Income, Axis Mutual Fund, said, “The RBI’s policy outcome was broadly in line with our expectations - no change in rates, retention of a neutral stance and an attempt to calm market sentiment amid the evolving situation in the Middle East. We believe the neutral stance is appropriate, as the near-term growth and inflation outlook has not materially changed. That said, the situation remains fluid and will critically depend on where crude prices settle. Markets have already sold off aggressively in anticipation of aggressive rate hikes. With the RBI’s commitment to keep system liquidity at neutral to surplus and inflation well within RBI’s comfort zone, we expect a pause in interest rate for the next two policy meetings. We expect the 10-year G-Sec yield to trade in a range of 6.75–7.0% during the first half of 2026. The current scenario presents an opportunity to investors to take advantage of both tactical duration and accrual given the positive news around the ceasefire in Middle East and neutral to dovish RBI MPC policy today. The 2-3 year corporate bond yields at 7.50% (225 bps above Repo rate) while the 30-40 year Gsec yields are above 7.70% and above, which presents an attractive investment opportunity for investors.”