RBI Governor Signals Possible Further Rate Cuts Amid Easing Inflation

Reserve Bank of India (RBI) Governor Sanjay Malhotra has indicated that the central bank may consider further interest rate cuts if inflation falls below current projections or if economic growth weakens. 

Speaking in an interview with CNBC-TV18, Malhotra emphasised that the Monetary Policy Committee (MPC) continuously evaluates the economic scenario and inflation outlook before deciding on the appropriate policy stance.

He noted that both inflation control and growth revival remain equally important objectives for the RBI. The central bank recently made an unexpectedly large rate cut to 5.5% in June as part of efforts to stimulate India’s slowing economy, and the governor confirmed that additional cuts are possible if inflation trends remain favourable and growth pressures persist.

India’s consumer price inflation has eased significantly and hit a six-year low of 2.1% in June 2025, well below the RBI’s medium-term target of 4%. The decline was predominantly driven by a 1.06% fall in food prices, with large drops in vegetables, pulses, and spices.

This sustained cooling in inflation follows eight consecutive months of moderation and has raised expectations that the RBI might undershoot its projected inflation of 3.7% for the current fiscal year. Despite some sectors like housing, education, and health registering slight increases in inflation rates, the overall easing has supported the central bank’s neutral monetary policy stance and the prospect of further easing to support growth.

Liquidity Management and Bank Ownership Reforms

In addition to monetary policy, Governor Malhotra highlighted ongoing efforts to improve liquidity management. The RBI recently completed an internal review of its liquidity framework, with findings expected to be published by the end of July. This initiative aims to better align overnight borrowing costs with the benchmark repo rate by efficiently injecting or absorbing liquidity as needed, thus ensuring smoother market functioning.

On regulatory reforms, the RBI is contemplating adjustments to bank ownership norms, potentially allowing foreign banks to increase their stakes in Indian lenders up to 26%, compared to the current 15% ceiling for strategic investors. While foreign investors can hold up to 74% total ownership, this policy review seeks to clarify ambiguities and streamline ownership regulations.

However, the RBI maintains caution against permitting business conglomerates to own banks, citing inherent conflicts of interest between conducting commercial and banking activities within the same group.

Also Read: Has the RBI Asked Banks to Stop Dispensing ₹500 Notes from ATMs by September?

Conclusion

RBI Governor Sanjay Malhotra’s remarks underscore a data-dependent, flexible approach to India’s monetary policy, balancing inflation control against the need for growth stimulation. With inflation at multi-year lows and economic growth showing signs of softness, further rate cuts remain on the table to support the economy.

Meanwhile, regulatory and liquidity reforms are underway to enhance financial stability and market smoothness.

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