India can soar past 7% growth as inflation cools, says RBI governor Sanjay Malhotra

Reserve Bank of India (RBI) governor Sanjay Malhotra on Friday said India can achieve a 7%-plus growth rate and the country should aspire for that.

“The primary objective of RBI is price stability and inflation, while supporting growth. We can be more supportive of growth as inflation is coming down and is expected to go down,” Malhotra says in the post-monetary policy press conference.

On personal income tax exemptions and tax relief announced in the Union Budget 2025-26, the RBI governor says the government’s recent move will not have a major impact on inflation. “I do not think that this ₹1 lakh crore (tax forgone) of relief, which was desired and everyone was wanting it.... Now that it is there, counter questions are being asked if it will increase inflation. I don’t think that it is going to have an upward impact on inflation. The capacity utilisation levels are at 75% and this tax relief will help us in our growth. It should not have any major impact on inflation,” says Malhotra.

The Reserve Bank of India’s monetary policy committee (MPC) unanimously slashed the repo rate, the first cut in nearly five years, by 25 basis points to 6.25% after keeping the key policy rate unchanged at eleven consecutive meetings. The MPC also decided unanimously to continue with the 'neutral' policy stance. This was the first monetary policy statement of the new RBI governor Sanjay Malhotra, who took over from Shaktikanta Das in December 2024.

The repo rate cut comes after several ministers called for lower interest rates. Finance Minister Nirmala Sitharaman advocated for “far more affordable” interest rates while Minister of Commerce and Industry Piyush Goyal called for a repo rate cut, linking the practice of policy rate decisions to food inflation as "flawed".

The MPC under the new RBI governor will have to walk a tightrope between taming inflation and boosting economic growth. India’s GDP growth in Q2 FY25 slipped to a seven-quarter low of 5.4%. The monetary policy committee forecasts India’s gross domestic product (GDP) to grow at 6.7% in the financial year 2025-26.

Considering the existing growth-inflation dynamics, the MPC, while continuing with the neutral stance, felt that a less restrictive monetary policy is more appropriate at the current juncture, Malhotra concluded while reading the monetary policy statement. The MPC will take a decision in each of its future meetings based on a fresh assessment of the macroeconomic outlook, he said.

Rupee Free Fall

On depreciation of the Indian rupee which hit an all-time low against the US dollar this week, the RBI governor says the rate at which rupee settles is a function of demand and supply. “We should not look at day to day volatility in rupee. It was factored in while deciding the rate cut and the stance we are maintaining,” he says.

While a depreciated rupee puts pressure on inflation, a higher worry for the RBI is global uncertainties and tariff wars. “That has a direct impact on growth,” says Malhotra. “A lot of appreciation of dollar and the depreciation of the rupee is due to this uncertainty.”