The governor highlighted that the transmission of policy rate changes is ongoing but still in its early stages

Business Desk mumbai

The Reserve Bank Governor Sanjay Malhotra on Tuesday said that the RBI maintains a neutral stance on interest rates, signalling flexibility depending on economic developments. “If inflation is lower, and the forecast is lower, or if the growth is lower, policy rates can be cut, but we have to wait and watch,” CNBC-TV18 reported.

“One cannot say inflation is more important than growth, it’s always the mix of both factors. The policy remains data-dependent, with the inflation outlook taking precedence over transient base effects or momentum,” Malhotra emphasized. The governor highlighted that the transmission of policy rate changes is ongoing but still in its early stages. In the three months to May 2025, new loans saw a 24 bps transmission, while outstanding loans reflected a 16 bps shift.

Clarifying the use of real interest rates in policymaking, Malhotra said: “It’s always a range based on estimates and not a precise number... it’s just a guidepost.” India’s banking sector is facing a significant shift in household savings patterns. The share of savings flowing into banks has fallen from 43% to 35% over the last nine years. He said the growing appeal of mutual funds, debentures, and small savings instruments to Indian households and said this changing landscape is forcing the RBI to continuously re-evaluate the regulatory burden on banks.

While retail lending has risen, infrastructure remains on the RBI’s radar. “Infra is a foundation for any economy, and we’d like banks to do infra lending continuously,” said Malhotra, noting alternative funding routes have reduced banks’ share. The governor said India’s 6.5% growth projection is “aligned with our expectations,” though signals are mixed.  The monsoon is favourable, “we’re seeing optimism in consumer surveys, trade deals are ongoing." The RBI will keep reviewing estimates based on evolving trends.