RBI in 'wait-and-watch' mode as West Asia risks cloud inflation outlook: Governor Malhotra

The Reserve Bank of India is in a “wait-and-watch” mode and likely to keep policy flexible as rising tensions in West Asia threaten to complicate the inflation outlook, Governor Sanjay Malhotra said.

Speaking at Princeton University on April 18, Malhotra said the central bank has maintained a neutral stance in recent policy cycles, preserving room to respond as risks to growth and prices evolve.

The governor noted that West Asia accounts for about one-sixth of exports, one-fifth of imports, half of crude oil imports, and a significant share of remittances, making the economy vulnerable to prolonged supply disruptions.

“In uncertain times such as this, it is important to be agile and nimble, maintaining a broad policy stance, and avoid making firm commitments of the future path of policy,” Malhotra said.

“In such circumstances, our broad approach has been to be even more data dependent and to continuously reassess the balance of risks. We are therefore in wait and watch mode now,” he added.

Supply shocks in focus

Malhotra said monetary policy would focus on preventing supply-driven price shocks from feeding into broader inflation, stressing the importance of anchoring expectations rather than relying on aggressive demand tightening.

The RBI follows a flexible inflation targeting framework with a 4% target and a tolerance band of +/- 2%, which, Malhotra said, allows policymakers to “look through” temporary shocks while acting against persistent inflation.

He said policymakers prioritise risk management in uncertain conditions, favour gradual adjustments in policy rates and rely on clear communication to guide markets.

Inflation record improves

India’s inflation performance has strengthened since adopting the framework in 2016, with average headline inflation easing to 4.7% from 7.4% earlier, the governor said.

Inflation in India also returned to target faster than many advanced economies following pandemic-era supply disruptions, he added.

Policy flexibility retained

The RBI’s neutral stance allows it to avoid committing to a fixed policy path while remaining responsive to incoming data, Malhotra said.

He added that policymakers must remain agile as both the magnitude and direction of economic outcomes have become harder to predict.

Fiscal support and stability

The governor said government measures, including supply-side interventions, fuel tax adjustments and improved agricultural resilience, have complemented monetary policy in containing price pressures.

Malhotra said India’s cautious regulatory approach has helped it withstand past global crises and maintain financial stability, supported by reforms such as the Asset Quality Review and the Insolvency and Bankruptcy Code.

“Our financial system is very healthy and resilient today,” he said.

He also highlighted India’s rapid progress in digital payments, noting the country now accounts for nearly half of global real-time transactions, driven by the Unified Payments Interface.

Malhotra said India has grown at an average rate of 6.1% over the past decade, outpacing global growth, supported by stable macroeconomic frameworks and institutional strength.

“The resilience of the Indian economy is not by chance… it rests on a foundation of stability and inclusion,” he said.