Reserve Bank of India Governor Sanjay Malhotra has sought to temper expectations that interest rates are headed higher, arguing that the central bank would have adopted a restrictive stance had an increase been the clear next step.

“If it was so certain that we are going to hike in the coming months, then we would have changed the stance from neutral to restrictive, right? We did not do that,” Malhotra said in an interview with ET Now on Wednesday. “We did not do that precisely because there is elevated uncertainty.”

His remarks came as markets reassessed the interest-rate outlook following a decline in crude oil prices after truce talks between the United States and Iran.

India is particularly sensitive to oil movements because it imports about 90% of its requirements. Lower prices reduce pressure on inflation, the current account and the rupee, but Malhotra cautioned that the situation remained unsettled.

Markets reduce tightening bets

Bond and derivatives markets reacted quickly to the governor’s comments.The yield on the benchmark 10-year government security dropped five basis points to 6.82%, its lowest level in three months. Overnight index swaps also declined by 10 basis points as traders pared expectations of monetary tightening, according to Bloomberg.

The fall in crude prices had prompted some economists to revisit their forecasts. Citigroup withdrew its call for rate increases during the current financial year after the truce announcement.

Still, Malhotra said the RBI was not ready to draw firm conclusions.

“The truce itself is fragile. It will take some time for the supplies to restore fully,” he said. “Upside risks have certainly reduced, but we’ll have to still wait and watch as to where crude prices ultimately end up.”

RBI remains data-dependent

The central bank left the repo rate unchanged at 5.25% during its June 3-5 policy meeting.

Minutes from that meeting showed policymakers had considered the possibility that India’s economic outlook could improve quickly once the conflict ended. However, the committee retained a neutral stance, preserving room to respond in either direction.

Malhotra’s comments reinforce that approach. The RBI is monitoring inflation, global developments, energy prices and domestic demand before deciding its next move.

Consumer inflation is currently below the central bank’s 4% target, reducing the immediate need for tighter policy.

Weak monsoon adds another risk

The monsoon has emerged as a second major concern.

Cumulative rainfall was 43% below normal as of June 22, raising the possibility of weaker farm output, higher food prices and pressure on rural consumption if the shortfall persists.

Malhotra said India had “sufficient” food buffers, but added that policymakers would continue to monitor the effect of rainfall on growth and inflation.

“As of now, as I see it, is the global uncertainty, which is challenge number one,” Malhotra said. “We are very well prepared to meet all challenges.”

Rupee policy remains unchanged

The governor also reiterated that the rupee would continue to be driven by market forces.

The currency fell to a record low near 97 against the dollar last month, prompting the RBI and the government to announce measures aimed at improving foreign-currency inflows.

These included allowing banks to raise more foreign-currency deposits, easing investment rules and offering tax incentives to overseas investors.

Malhotra said the central bank does not defend a particular exchange rate. Its intervention is aimed instead at curbing disorderly movements and preventing speculative activity from driving excessive volatility.

Published on: Jun 25, 2026 11:01 AM IST