Crude shock puts RBI on watch: Governor Sanjay Malhotra says MPC will reassess growth, inflation next month

Reserve Bank of India’s Governor Sanjay Malhotra said on Friday that the Monetary Policy Committee (MPC) will reassess growth and inflation dynamics at its meeting next month. Malhotra’s remarks came amid rising prices of crude oil due to the ongoing crisis in West Asia in the wake of the US-Iran war.

On inflation

Reserve Bank of India Governor Sanjay Malhotra said inflation risks are “on both sides” right now, and he isn’t ready to say which way they’ll break before the Monetary Policy Committee (MPC) meets again in October.

“I mean, risks are there on both sides… The MPC will make a reassessment of the growth-inflation dynamics when it meets in a month or so. Let me not give my assessment,” Malhotra said in an exclusive interview with CNBC-TV18.

Malhotra said food such as sugar and onions were elevated, but those increases had largely been factored into RBI’s projections because of deficient rainfall, though crude remains a worry.

He added that rising crude oil prices will have an impact, but the extent will depend on how much is passed through.

“Crude has gone up. July was for the Indian basket an average of 82 billion dollars. August, it has gone up to 90 billion dollars, and so that will certainly have some impact, but it will depend again on the pass-through. Till now, the government has to a great degree absorbed and cushioned that shock, and as a result of that, you find that the Indian economy has weathered this shock really well,” he said.

Malhotra added that the government has, to a great degree, absorbed and cushioned that shock; as a result, the Indian economy has weathered this shock really well.

According to the media house, Governor Malhotra stressed that the RBI does not assess monetary policy based only on average inflation.

Instead, it looks at headline inflation, its composition, the trajectory of prices and underlying inflation. He said inflation had been normalising, while underlying inflation remained low, although core inflation excluding precious metals was also increasing and moving towards the target.

The Reserve Bank of India (RBI) governor said it would continue to watch whether there is persistence, inflation expectations, and generalisation.

Malhotra also flagged a separate, newer pressure point: rising global bond yields, with the US 10-year approaching 5 per cent and G7 yields at multi-decade highs. Asked directly whether this would weigh on monetary policy, he was quoted as saying.

“Well, obviously yes, it does impact us.” In a separate follow-up, he added that the impact would be felt “on both growth, inflation, on the interest rates.”

Malhotra told CNBC-TV18 that higher bond yields in other jurisdictions were being driven by factors including high fiscal deficits, elevated public debt, greater pass-through of energy shocks and higher inflation expectations. While Indian bond yields have also risen, he said the increase has been much smaller.

Malhotra said all these factors would be taken into account at the MPC’s next meeting, but declined to offer his own assessment of the growth-inflation outlook ahead of that review.

The next meeting of the Monetary Policy Committee (MPC), the RBI’s rate-setting panel, is scheduled for October 5-7, 2026.

On FCNR (B) deposits

In an interview with CNBC-TV18, Malhotra said nearly 50 per cent of the Foreign Currency Non-Resident (Bank), or FCNR(B) deposits, mobilised under the forex swap facility, is for a 5-year tenor.

The inflows under the FCNR (B) deposits totalled $127.22 billion in the recently concluded RBI swap facility.

The governor said the flows were certainly “very robust” and reflect the strong belief and confidence of the investors worldwide in the extremely strong macroeconomic fundamentals of India.

“It demonstrates at the same time that we can get foreign flows, capital flows, in a short period of time. This helps us, in terms of financial stability, external sector resilience. We are quite happy with the result,” he added.

Malhotra said the strong flows have helped stabilise the forex markets.

“It has given us the liquidity at the same time, and it has improved sentiments,” he said.

He said that FCNR(B) deposits are predominantly concentrated in the 5-year tenure, which accounts for nearly half of the total portfolio at approximately (48.50-50 per cent).

The next largest segment, comprising about 42 per cent, falls within the 3-year up to 4-year maturity bracket. The remaining share, about 9 per cent, falls in 4-5 years’ tenure window.

Malhotra said the Reserve Bank has enough tools at its disposal to manage the current surplus of liquidity in the banking system, and is prepared to use them as needed.

Some of the liquidity will be withdrawn on its own over a period of time, he added.