Reserve Bank of India (RBI) Governor Sanjay Malhotra anticipates that key policy rates will stay low for an extended period, according to the RBI’s forecasts, as the Indian economy is experiencing strong growth and inflation is well managed, as stated in a Financial Times report.

Malhotra additionally remarked that the nation’s economic expansion might exceed the RBI‘s estimates if the trade agreements currently under negotiation with the EU and the US are finalized.

He noted that the effect of the US trade agreement could potentially add approximately half a percentage point to growth, as mentioned in the FT report.

While the central bank has not analyzed the potential effect of the EU trade deal in depth, it is expected to enhance growth as well, he explained.

When questioned about concerns raised by some economists regarding the reliability of India’s economic data, Malhotra acknowledged that revisions do occur but maintained, “I believe the figures are quite reliable.”

On December 5, Malhotra revealed a reduction of 25 basis points in the repo rate, lowering it from 5.5 percent to 5.25 percent, aimed at stimulating economic growth.

He pointed out that the economy’s remarkable growth of 8.2 percent in the second quarter of the current fiscal year, combined with a significant drop in inflation to 1.7 percent, has created a unique “Goldilocks period” for India’s economic landscape.

He added that the favorable inflation situation has allowed room for a repo rate cut to bolster growth. Additionally, the RBI has revised its GDP growth forecast for the country upward to 7.3 percent from the previous 6.8 percent.

Malhotra also conveyed that the RBI plans to enhance liquidity in the economy through open market operations involving the purchase of government securities amounting to Rs 1 lakh crore. Moreover, the RBI will establish a dollar-rupee swap agreement worth $5 billion.

Furthermore, Malhotra stated that the RBI has resolved to maintain a “neutral policy stance.”

A neutral stance suggests neither an increase nor decrease in liquidity, ensuring a careful balance between managing inflation and supporting growth. The RBI has adhered to this neutral position as it awaits the effects of previous monetary policy easing and the implications of trade discussions.