RBI Governor Malhotra Sees Strong Growth Outlook but Warns of Global Market Risks

Reserve Bank of India (RBI) governor Sanjay Malhotra, on October 3, expressed confidence that India’s economy has the capacity to sustain a growth trajectory of 7–8 percent in the coming years, even as global markets face risks of correction and uncertainty.

India’s Growth Outlook

Malhotra said India’s recent growth performance gives confidence that the economy can continue on a 7–8 percent path. “India’s past years’ growth gives us the confidence that India can grow at 7–8 percent,” he stated. He added that while the central bank’s primary focus remains price stability, it also keeps growth considerations in mind.

The central bank recently revised its gross domestic product (GDP) growth forecast for FY26 upward to 6.8 percent, underscoring optimism about India’s economic resilience despite global headwinds.

Inflation Targeting Framework

The governor reiterated the central bank’s focus on price stability within its current inflation-targeting framework. The target is set at 4 percent, with a tolerance band of plus or minus 2 percent. This framework, reviewed every five years, remains central to the RBI’s monetary policy strategy.

Malhotra highlighted that India’s inflation trajectory has faced significant challenges in recent years. “The last five years were defined by supply chain shocks that have left scars, with Covid, the Russia-Ukraine conflicts. These were unprecedented,” he said. He explained that global commodity spikes and adverse weather patterns pushed inflation above 4 percent in India, driven largely by food and energy prices.

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Policy Tools and Lessons

Reflecting on these challenges, the RBI governor acknowledged the limits of monetary policy during supply-driven inflation shocks. “Monetary policy is ineffective to deal with supply-side inflation,” he observed.

He added that one of the key learnings for the RBI has been the importance of having clearly defined exit policies for both supply and demand side interventions during crises. By February 2025, inflation had returned to within the 4 percent target range, he said, which validated the central bank’s calibrated approach.

RBI’s Autonomy and Accountability

Malhotra also spoke on the institutional framework governing the RBI. He said India has managed to strike a balance between ensuring the independence of the central bank and maintaining accountability.

“India has done very well in giving the Reserve Bank the independence where it is required, but with accountability,” Malhotra said. This, he noted, has helped the institution navigate challenges while keeping credibility intact.

Global Uncertainties and Risks

Turning to global developments, Malhotra acknowledged that the broader economic environment continues to remain uncertain. “Despite uncertainties, US tariffs, global growth has been resilient. It needs to be seen how it unfolds,” he said.

He warned that fiscal stress is widespread across countries. “Fiscally, every country is stressed, not apparent how it could be normalised. Lower global growth is a risk for all economies,” Malhotra added.

The governor further noted that high debt levels in advanced economies are a concern for global central banks.

India’s Macroeconomic Strengths

Despite the risks in the global environment, Malhotra highlighted India’s relative strength. “India’s macroeconomic fundamentals are strong, low inflation, narrow CAD, strong balance sheets of corporates, high forex reserves showing financial and policy certainty,” he said.

He added that India continues to be perceived as an anchor of stability in a volatile global landscape.

Concerns Over Market Corrections

Malhotra flagged potential risks in global equity markets, particularly those driven by technology stocks. “Global equity markets are led by technology stocks, correction might be in the offing,” he cautioned.

He also pointed out that inflation across economies remains range-bound, though still at the higher end of the range.

Gold as a Barometer

The governor also highlighted gold prices as a signal of global investor sentiment. “Gold prices are now showing movement, acting as a barometer of global uncertainty,” he said.

Conclusion

RBI Governor Sanjay Malhotra’s remarks highlighted both the confidence in India’s domestic growth trajectory and the caution required in navigating global uncertainties. While India’s strong macroeconomic fundamentals, stable inflation outlook, and rising growth estimates provide resilience, the risks of global market corrections, elevated debt levels, and energy-driven pressures remain in focus. His message underscored the RBI’s twin priorities of maintaining price stability and supporting sustainable growth, even as global conditions continue to pose challenges.

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