RBI governor Sanjay Malhotra expects interest rates to stay low for 'long period'

RBI governor Sanjay Malhotra

Reserve Bank of India governor Sanjay Malhotra expects India's interest rates to remain low for a "long period" as the economy remains robust and could receive a boost from trade deals with the US and Europe, he said in an interview with the Financial Times. 

The central bank's projections suggested rates "should remain low for a long period of time", Malhotra said in the interview published by the paper on December 17.  The RBI's Monetary Policy Committee (MPC) had unanimously cut the repo rate by 25 basis points (bps) to 5.25% earlier this month.

The governor noted that RBI's economic forecast did not take the potential effect of trade agreements into account. India is engaged in trade talks with the US and the Europe and conclusion of the deals would provide a major impetus to India's growth.

"The impact of the US trade deal could be as much as about half a percentage point," he told FT.

Malhotra said that the most recent headline GDP figure "was surprising" and that the RBI, which had predicted 7 percent annual growth in the July-September quarter had to "improve our forecasting".

The Indian economy expanded at a sharper-than-expected clip of 8.2 percent in the July-September quarter, but growth is expected to slow as the full impact of up to 50 percent tariffs imposed by the US hit exports and sectors from textiles to chemicals.

The world's fifth-largest economy is under pressure from punitive tariffs imposed by US President Donald Trump, widening its trade deficit and pushing its currency to a record low.

Earlier in December, India's central bank cut its key repo rate by 25 basis points and left the door open for further easing as it took steps to boost banking-sector liquidity by up to $16 billion to support a "goldilocks" economy.

Amid questions over the quality of Indian data, Malhotra said "some margin of error will always be there because these figures do get revised". He pointed out that these margins of error should always be kept in mind while making any policy. "Otherwise I think the figures are quite robust."