Malhotra says RBI Looks Beyond Headline CPI in Policy Decisions – DD News

Reserve Bank of India Governor Sanjay Malhotra said the central bank looks beyond headline consumer price inflation when setting monetary policy, examining core inflation, underlying price pressures and the sources of inflation before calibrating interest rates.

In an interview with DD News, Malhotra said inflation was currently above the Reserve Bank's 4% target primarily because of supply-side factors, while reiterating that maintaining price stability remains the central bank's primary objective as it also seeks to support economic growth.

"The RBI focuses on growth and inflation while setting monetary policy. The inflation target remains 4%, with a tolerance band of ±2 percentage points. The RBI analyses headline inflation, core inflation and the underlying drivers of price pressures. Current inflation is above target mainly because of supply-side factors," Malhotra said.

The remarks come days after data showed retail inflation accelerated to 4.38% in June from 3.94% in May, moving above the RBI's medium-term target of 4%, the highest since December 2024, largely due to food price pressures.

However, underlying inflation remained contained. Core CPI inflation stood at around 3.9% in June, while core inflation excluding gold and silver remained at 2.5%, suggesting that underlying price pressures continue to be benign despite the recent rise in headline inflation.

He added that stable prices are the foundation of sustainable economic growth and said the Monetary Policy Committee's decisions continue to be guided by evolving inflation and growth dynamics.

On the banking sector, Malhotra said India's financial system remains resilient, supported by strong capital adequacy and liquidity buffers, while credit growth continues to remain broad-based across sectors.

He said overall bank credit expanded around 18% year-on-year in June, with no signs of stress emerging in any major segment of the economy.

"Credit growth has been healthy across sectors, including agriculture, industry, MSMEs, infrastructure and housing," Malhotra said.

According to the governor, infrastructure lending grew around 11-12% year-on-year in June, while credit to micro, small and medium enterprises expanded 24-25%. Lending to industry rose about 17%, agriculture around 15%, and housing loans around 11%.

Malhotra also cautioned banks to remain vigilant as they increasingly deploy artificial intelligence and digital technologies.

He said lenders must strengthen safeguards around cybersecurity and data privacy while adopting AI-driven solutions, underscoring that technological innovation should be accompanied by robust risk management and customer protection.

Discussing the external sector, Malhotra said uncertainty in the global environment continues to pose the biggest challenge for the Indian economy, with geopolitical tensions and the progress of the southwest monsoon remaining key domestic risks.

Despite these uncertainties, he expressed confidence that India's external sector would remain resilient over both the near and medium term.

"Although the US dollar has strengthened, India's external sector remains resilient. 

Government measures, strong remittances and free trade agreements are expected to support exports, the current account and the balance of payments," Malhotra said.

He added that the RBI's recent measures relating to the foreign exchange market and foreign investment in government bonds have strengthened the country's external position. The governor also noted signs of improvement in foreign portfolio investment and remittance inflows, while saying India remains relatively insulated from global currency pressures despite the appreciation of the US dollar.