The following is an edited transcript of the Reserve Bank of India’s press conference after its monetary policy meeting today.

Question: In your speech, you pointed out that inflation will average 5.8% over the next three quarters. That means policy is still very loose in terms of the real rate. Did you contemplate a 50-basis-point hike? In the minutes of the previous meeting, you said you would recalibrate policy as inflation normalises. Should we expect a recalibration of the real rate in the policies to come?

Governor: There are two parts to the same question. One is whether we considered 50 basis points. We discuss all options and then take a view on the appropriate monetary policy decision.

As regards the real rate, even a 25-basis-point hike recalibrates the rate. Whether more is required is a call that will be taken going forward. It will be up to the MPC to take a view.

By changing the stance, we have clarified that there is no rate cut in the near term. What we are contemplating is either a pause or a rate hike. The size of the hike will depend on evolving macroeconomic conditions and growth-inflation dynamics.

Headline inflation is our target, as given to us by the government, and we continue to focus on bringing it to 4%. But that is not the only measure to look at. We have to examine underlying inflation and its path, especially when much of the increase in headline inflation is because of base effects and other supply-side factors.

Headline inflation alone may not be the right measure for this assessment. We have to look at other measures, including core inflation and diffusion indices, to infer what underlying inflation is and where it is moving.

Question: Credit growth has been very strong, at almost 19%. With this rate hike, and with either a pause or further hikes ahead, interest rates will generally harden. Do you expect credit growth to taper or slow from here? Could you also give us your assessment of liquidity, with core liquidity still around ₹10 trillion?

Governor: I will answer one question and come back to the second if others do not ask it. I am sure liquidity will come up.

As I mentioned at the last press conference, credit growth has been at, or among, the highest levels in the data we have. There are a number of reasons for that.

Will it moderate going forward? I think it will continue to be strong. A few percentage points here or there should not matter too much in the overall scheme of things. It will remain strong and continue to support growth.

Question: How much are global factors, such as US Federal Reserve policy, weighing on the RBI’s decisions? Are decisions still very much focused on domestic factors?

Governor: Primarily, our policy decisions are based on domestic growth, inflation, macroeconomic conditions and the outlook. But that certainly does not mean external forces and conditions do not matter. They affect our growth, inflation and interest rates.

As I mentioned in an earlier interview, these factors are discussed, as is also noted in the minutes. They are taken into consideration in our monetary policy decisions.

Question: Whenever there has been abundant liquidity, NBFCs have been among the biggest beneficiaries, and that has invariably led to asset-quality issues. The RBI is now seeking to restrict revolving credit, while drought conditions are emerging in some important credit markets. How do you see this combination playing out? Are you confident that similar asset-quality issues will not arise?

Governor: Bank credit to NBFCs has grown robustly, by about 37%. NBFC credit growth itself is also robust, although I think it is lower than that of banks. We will have to check, but I think NBFC credit growth to the real economy is lower than that of banks.

We do not see any issues or concerns relating to asset quality. We are always alert to such risks developing in NBFCs, not only from an asset-quality perspective but also, as noted by the MPC, in terms of demand and price pressures. We are conscious of these risks, but we do not see them building up as of now.

Question: This is a follow-up to the previous question. NBFCs argue that revolving credit helps them reach the last mile. Could it be permitted alongside term loans, or could there be some relaxation? Or was the draft intended to remind NBFCs that the rules did not permit this activity in the first place?

Governor: You have asked the question and also given the answer. As you said, the draft we published is, in a sense, a clarification. It is not a new rule or law, because revolving credit by NBFCs was not permitted.

It is not merely a clarification. Individual NBFCs had been advised about this several times through directions during RBI supervision. With technological developments, revolving credit was being provided using software and technology in the guise of term loans. We therefore published a draft to incorporate this explicitly in the rules.

We have received a number of comments and are examining them. As I said earlier, we will form a fresh view and announce our final decision shortly, keeping in mind whether there is any systemic risk, particularly liquidity risk. That was the reason it was not allowed earlier. We will consider whether those circumstances still exist before taking a decision.

Question: Could the RBI change its view as circumstances change?

Governor: You will know when we finalise it shortly. At present, it is still being examined. There has not yet been a full discussion at my level. The department has examined and analysed it and will place it before us. The Governor and Deputy Governors take a collective decision. You will know about it shortly.

Question: The FCNR deposit scheme has received a strong response. How significant an achievement does the RBI consider this? What does the RBI now expect from banks, given the liquidity they have received and the possible impact on margins? Some commentators believe that if the rupee is weaker when repayment falls due, there could be a cost to the exchequer. How should they understand that risk?

Governor: First, the mobilisation of approximately $135 billion in FCNR(B) deposits reflects the strength of India’s macroeconomic fundamentals and our economy. We have raised such a large volume of deposits in a very short period.

As far as banks are concerned, I am confident that they will deploy these deposits prudently and carefully, as they have done in the past. Credit has grown by 19%, and there is substantial demand for credit. These deposits are helping meet that unmet demand. We are confident that banks will continue to deploy them prudently.

As for repayment, our macroeconomic fundamentals are very strong. The decline in flows and pressure on the current account arising from external headwinds are temporary problems. The indications we are receiving point towards a stronger external sector sooner rather than later.

Whether it is gross FDI, services exports, remittances, government reforms to improve the ease of doing business, opening up FDI in sectors such as insurance, or tax and other rationalisation relating to government securities, these developments give us confidence that the balance of payments will move from deficit to surplus, as it has in previous years. We also have adequate foreign exchange reserves that can be used to meet repayments.

Question: Some large banks have said after the policy that they do not plan to raise deposit rates for the next two or three months because of surplus FCNR(B) deposits. When do you expect transmission on the deposit side? When do you expect banks to use these deposits?

Governor: We are already seeing FCNR(B) deposits being used, as evidenced by high credit growth. But the amount is so large that we do not want banks to deploy it overnight. They need to conduct due diligence and take their time.

There is surplus liquidity today, well above what is required, but we do not believe this is a very long-term phenomenon. Liquidity will be drained through natural factors such as currency leakage and banks’ reserve requirements as deposits grow, as well as through our operations, including spot transactions and sell-buy swaps.

Follow-up: When do you expect transmission to take place?

Governor: We do not expect these surplus-liquidity conditions to last very long. Within this year, I expect a large amount of this liquidity to be absorbed. Generally, currency-in-circulation leakage in a year is around ₹3 lakh crore to ₹4 lakh crore. Then there are the sell-buy swaps we have already undertaken and are undertaking.

We have other tools, such as OMOs and, as well as spot intervention to support the rupee. Without giving you a specific number, we do not expect liquidity to remain at such high levels for a very long time.

Follow-up: Foreign exchange swaps are expensive for the Reserve Bank. CRR would be cheaper for the system as a whole. Is it off the table?

Governor: You asked me this in your interview as well. I would not rule anything out because this is still an evolving and uncertain world. But I did mention that CRR would be one of our least-preferred ways of withdrawing liquidity.

When we talk about what is cheaper or more expensive for the Reserve Bank, we need to look at the costs and benefits to the economy. Questions have also been raised about the cost of FCNR(B) deposits to the Reserve Bank. That is not our primary consideration.

I would request all of you to look at the overall benefits to the economy from our operations, whether they involve FCNR(B), liquidity management or a monetary policy change. Profit or surplus is incidental. The primary consideration is how the economy as a whole will be affected by our measures.

Question: We have seen substantial inflows and RBI intervention. Yet market polls and hedging behaviour suggest that the market is not convinced the rupee’s depreciation trend is over. Does that worry you? What is your diagnosis? Why is intervention still required when India has demonstrated that it can attract flows when needed and defend the rupee?

Governor: Markets can be quite irrational in the short run. It is only in the long run that they are able to find the right value. That is the short answer.

Follow-up: Would you describe the current rupee market as irrational?

Governor: By a number of estimates, including the real effective exchange rate, the rupee is not overvalued. It may be undervalued.

Question: The decision to raise rates was unanimous, but there were two dissenters on the change in stance. What was discussed, and why did the majority feel it was necessary to change the stance at this policy?

Governor: First, we do not vote on it. It is not a vote; it is a view. It gives you a sense of our thinking. Different people can think slightly differently about the policy path ahead.

I have already explained what this change in stance means, but let me clarify two or three things. I tried to explain this in my April 2025 statement as well.

Across countries, tightening generally means high interest rates and appropriate liquidity conditions that constrain or curb economic activity. Accommodation means a loose monetary policy, with low interest rates and correspondingly high liquidity to support economic activity. Neutral means neither.

In our context, we have used the stance more as guidance for policy going forward, rather than as a description of whether the policy itself is accommodative or restrictive. We use it as a signal for our rates and future policy action.

We have used the word “calibrated”. Tightening means that a rate cut is off the table; a hike or a pause is possible. “Calibrated” is a milder form of tightening, where moves have to be measured and calibrated to evolving macroeconomic conditions. It is more data-dependent, rather than a predetermined indication that a hike will necessarily follow.

Follow-up: So you are trying to anchor inflation expectations while assessing the second-round effects of inflation?

Governor: Yes. We do not really know what the impacts will be, so we have to be data-dependent. Price stability, keeping growth in view, is our primary mandate, and we will continue to pursue that mandate.

Question: You said the RBI should consider the wider benefit to the economy rather than only the cost it bears. MDR is being applied from October 15. Do you think transaction volumes will fall? Could the RBI consider bearing the cost in the larger interest?

Governor: A decision has already been taken on MDR. As of now, we do not see any drop in volumes. Personally, I do not think a small fee will have a major impact on volumes.

Question: What message does insisting that a holding company be listed, even taking the legal route if necessary, send?

Governor: You know my answer. We do not respond to questions pertaining to a specific regulated entity. Kindly bear with us if your question is not answered. You use up your question by asking about an individual entity.

Question: With real GDP growth in April–June remaining close to 8% despite the geopolitical environment, has the RBI’s assessment of India’s potential growth rate increased? Does this mean the neutral real interest rate is higher? In the current geopolitical environment, does India need a higher neutral real rate to attract capital?

Governor: We do not have a number for potential growth. We had given some estimates for the real rate, but these are dynamic, difficult to measure and evolving. If a study has been done, we will give you those numbers for whatever they are worth.

Looking at the global macroeconomic situation, different countries have different circumstances. A country with very high inflation that has persisted for a long time is in a different position from India, which has seen inflation rise only in recent months. Public debt-to-GDP ratios may also be very different, and interest rates will therefore differ.

The global situation has an impact; that cannot be denied. But every country has a different context for its prevailing interest rates.

Deputy Governor:  There were three parts to your question. On potential GDP growth, if you look at the past few years, especially since COVID, growth has been highly resilient to multiple global shocks. This has coexisted with low and stable inflation, which indicates a high potential growth rate.

Even in April–June, growth of 7.8% coexisted with very low inflation. That might have been the case this year as well had the two shocks — climate and oil prices — not occurred. Although we do not have a specific estimate, a number of indicators suggest that the underlying strength and potential of the economy have increased.

On the natural real interest rate, we have conducted a thorough literature survey and exchanged notes with other central banks. As the Governor mentioned, it is a highly theoretical and fluid concept. It is important, but it cannot necessarily guide monetary policy.

Your third question was about the implications for India of the rising global cost of capital. You are right that demand for capital is increasing, including from hyperscalers and other new sources.

Two or three factors insulate India from those rising costs. One is fiscal prudence, which distinguishes us both within our asset class and relative to advanced economies. We are not seeing very high demand coming from, as is the case in some other countries.

We also have domestic sources of savings and investment, which reduce our dependence on global capital. Corporates still have substantial cash, and bank credit growth is strong. These factors make us more insulated than many other countries from what is happening globally.

Follow-up: If India’s growth-inflation situation does not require a rate increase, do you see no need to keep up with global rate increases?

Governor: That is right. Growth and inflation dynamics are both important, along with what the real interest rate should be. Global factors affect this, but not to the same extent as in some other countries.

Question: Have you formed a view on the insurance regulator’s proposed distribution reforms, including a steep cut in what banks earn from selling third-party products?

Governor: We have not formed a view. First, it is a draft. The regulator will take comments from all stakeholders, including the industry and consumer groups. The intention is primarily to reduce costs in consumers’ interests and to prevent or reduce mis-selling. They will take a decision in the best interests of consumers and the industry.

Question: The Finance Minister said earlier this week that negotiations had reached a plateau because the US was asking for more and India could not offer more. What would be the impact on our economy if a deal did not take place?

Governor: We do not yet know which sectors would be affected or the extent to which these tariffs would apply, so it is premature to answer. Obviously, there would be some negative impact.

At the same time, we have concluded a number of trade agreements recently. Some have become operational, and others are in the pipeline. They will help. Industry has also diversified its exports. All these developments should mitigate the impact if additional tariffs are imposed on some sectors.

Question: There are concerns about the new FEMA rules that took effect on October 1, particularly the export declaration form. Freelancers and content creators say they are subject to it and that this runs counter to ease of doing business. Will the RBI reconsider these requirements?

Deputy Governor Rohit Jain: The new trade regulations were issued in January, well ahead of the October 1 implementation date. Their purpose is to liberalise the handling of trade matters by authorised dealers, simplify processes and promote ease of doing business. Services exports have now been included for reporting purposes.

However, individuals are not subject to reporting requirements for contracts of a personal nature. There seems to be some misunderstanding about the reporting obligations, which we will clarify shortly through FAQs.

The new regulations are intended to simplify matters and reduce the burden on authorised dealers, exporters and importers. They are a positive step forward.

Governor: I will add some clarifications. As Rohit has said, individuals, whether importing or exporting, are not required to report, irrespective of the amount. There appears to be some doubt about this.

If you are subscribing to a television channel, an app or a newspaper, or providing services abroad as an individual — tutoring or some small software service, for example — and receiving payment, those transactions by individuals are not required to be reported. I am repeating this for the benefit of your viewers.

Second, even for exporters, where the amount is small — up to ₹10 lakh per bill, not annually — a self-declaration will suffice. There has been some concern about uploading or providing invoices. Up to ₹10 lakh, an alternative, rather than an exemption, has been provided in the form of self-declaration.

Third, reporting on is to be done by banks and authorised dealers, not individual exporters and importers. They only need to provide the information to their authorised dealer or bank.

Some information, such as the purpose code, was already being provided at the time of payment. We have asked for some additional information to improve reporting and the availability of data on services exports. We do not consider this a major inconvenience or burden. Such reporting already happens for merchandise trade; we have sought to bring services into line with that.

Question: You raised the growth forecast by 40 basis points and the policy rate by 25 basis points. Is there a disconnect? Higher interest rates should moderate economic activity, yet you have raised the growth forecast and changed the stance. Do you expect transmission to be delayed because surplus liquidity means banks may not pass the increase on to customers?

Governor: I did not follow your question.

Follow-up: If the rate increase is intended to contain excess demand, what impact do you expect it to have, given that the growth forecast has been raised by 40 basis points?

Governor: We have clarified this in the resolution. Broadly, there are three channels.

The first is recalibration. Rates were set in an environment of very low inflation. As inflation normalises, recalibration becomes necessary.

The second is the supply-side channel, with high energy prices and some higher food prices. Within this, there are direct effects, indirect effects and second-round effects.

The third is demand. We have given detailed reasons explaining where we see pressures and their extent. Inflation is certainly normalising, so recalibration is imperative, as the MPC noted.

There are some limited signs of second-round effects, which are difficult to distinguish from indirect effects. We will examine the data closely to assess whether we need to do more.

On demand, despite resilient growth, we see very limited signs of pressure. If demand were putting pressure on prices, one indicator would be rising corporate margins.

Demand-side pressures are quite limited despite growth in monetary and credit aggregates. This is explained in the resolution, and I would request you to look at it again.

Question: The policy statement says resilient non-farm activity will continue to support rural consumption. How confident are you that this can cushion further weakness in farm incomes and rural consumption arising from the weak monsoon?

Governor: We have factored all these conditions into our estimates. There is some slowing in agricultural output and rural demand. That is why, from growth of almost 8% last year, we are projecting 7.1% this year. All these factors have been taken into account.

Question: You recently said that stretched valuations in global AI stocks pose a risk to financial stability and that a correction could redirect foreign capital towards emerging markets such as India. Could you elaborate?

Governor: That speech was addressed to a global audience and focused on the global risks to emerging market economies, and, in that context, the risks to India.

Stretched AI valuations and a sudden correction can be a concern for various economies. But India does not have too much AI exposure in that context, so we do not see a major negative impact. If anything, the impact could be positive. That was the context of my statement.

Question: You have said there are limited signs of supply-side pressures becoming embedded in pricing behaviour. But retail inflation has not risen nearly as much as wholesale and producer price inflation since the West Asia conflict. Do you expect further pass-through? How much have you factored into the 5.8% inflation estimate over the next, especially with robust demand and an upward revision to growth?

Governor: We have seen only partial pass-through. Some of it is happening and will continue. The extent will depend on how persistent the supply-side pressures are. That is why we need to be data-dependent in our policy going forward.

We are already seeing about 37% of items recording inflation above 4%, and that is continuing. We will have to see how much further pass-through occurs.

Question: Banks and NBFCs have been seeing strong credit growth. Will this rate hike dampen loan demand?

Answer:  Credit growth is high, at about 18–19%, even if it is not at an all-time high. Over a longer period, such as 10 years, it has generally been in the 12–14% range, which is sustainable and supportive of growth.

Some moderation will occur in any case. As rates transmit — typically over a couple of quarters — there will be some moderation arising from both demand and rates.

Question: The insurance regulator’s distribution reforms affect banks in several ways, including fee income and credit-life products, and comment on their conduct. Bank selling practices were also discussed in the Financial Stability Report. Will there be coordinated action between the regulators?

Governor: It is for the insurance regulator to decide how it wants insurance products to be distributed. As mentioned, we have not yet firmed up our view. We will provide our comments to them.

Question: The 2026 monsoon has been the driest since…  Several states, including Bihar, Punjab and Maharashtra, have received below-average rainfall. What does this mean for households amid already rising inflation?

Governor: Obviously, it has an impact, but that impact has moderated over the years. The resilience of the rural economy, including farm and non-farm activity, has increased because of several measures.

On the farm side, these include greater use of irrigation, more climate-resistant varieties and improved agricultural practices. There have also been developments on the non-farm side. While there will be some impact on incomes, we believe households will remain quite resilient.

Question: With ECL implementation only months away, what is the RBI’s assessment of banks’ preparedness? Have banks raised any important implementation challenges in your discussions?

Deputy Governor Murmu: We issued the ECL framework well in advance, so banks are well prepared. We are also in touch with bankers and discuss any issues during our interactions.

Our assessment is that the transition will be smooth. We do not expect a problem. When we introduced the framework, we also conducted back-testing. We are continuously monitoring progress and holding workshops to provide clarification and support.

Question: In your opening remarks, the RBI flagged AI as a risk to the global economy. What specifically worries you: an AI-driven asset bubble, labour-market disruption or the wider impact on financial stability?

Governor: All these risks are material. For us as central bankers, the most significant is cyber risk.

Information technology is used across systems, and financial systems interact across borders. AI adds another dimension, so we have to be very vigilant. We are already taking a number of measures through our regulation and supervision departments and strengthening our systems to mitigate and prevent cyber risks.

Question: The statement mentions the constitution of a technical consultative committee for financial markets. Could you elaborate?

Rohit Jain: Financial markets have widened and deepened. A number of reforms have been undertaken, and we are taking regulatory measures to strengthen and develop them further.

We already engage extensively with market participants. Given the extreme global volatility and the need to obtain expert views in a more structured way, we are institutionalising this arrangement.

We will constitute a technical committee of experts and meet periodically to obtain their inputs and suggestions. This will help improve policymaking and our understanding of operational issues in financial markets. It will support the development of our markets to serve our needs.

Question: What is the RBI’s oil price assumption? Has it changed since August, and if so, why?

Answer: The oil price assumption is given in the Monetary Policy Report, which was released alongside the policy. It has increased by $5 per barrel because of the re-escalation of the conflict, prices remaining high and forward markets indicating higher prices than at the time of the last couple of policies.

Taken together, these factors have led to an increase, though quantitatively it is not very large. The situation is evolving, and this is our best estimate of the annual average at this point.

Follow-up: $95?

RBI response: Yes, $95.

Question: The rupee has fallen today and is close to an all-time low. Do you have a reaction, or are further steps likely?

Governor: As I mentioned, we will ensure that the rupee stabilises and finds its correct value. We will support orderly movement in the rupee and help it find its correct value, while ensuring that there is no excessive volatility.

Question: You made an important announcement for ordinary consumers about account aggregators. Earlier drafts on the sale of financial products through banking channels, including insurance, and the insurance regulator’s discussion paper were also intended to benefit customers. How significant is the account aggregator development, and how will it help people, including those in rural areas?

Governor: Thank you for asking. I was going to raise this myself. Account aggregators are an important mechanism, and I would request all of you to publicise this. It is useful not only for the economy but also for us as individuals, because it gives an overview of our financial assets.

This is a step towards integrating information that could previously be obtained through several account aggregators. There are, I think, at least 15 or so account aggregators, so the information was quite disaggregated.

By integrating them, it becomes possible for individuals, as well as users such as insurance brokers, asset managers and investment advisers, to obtain data with the consent of the individual concerned and provide appropriate advice.

The other point concerns the consolidated account statement, or CAS, which some of you receive. It does not contain information on bank deposits, which is a missing piece.

We are trying to facilitate access to information on bank deposits across all banks that have already been onboarded, with the rest to follow over time, through any one account aggregator.

Question: There have been suggestions on preventing money transferred to mule accounts from being lost and enabling its return. How quickly should a person report such a transfer? If the money has already been withdrawn and cannot be blocked, what should the person who suffered the loss do?

Governor: We have already issued a standard operating procedure. The sooner you report the incident, the sooner the information reaches the banks. That allows the account or amount to be frozen and the money to be returned to its owner. It should therefore be reported as quickly as possible.