Governor speak: What Sanjay Malhotra said on tariff, rupee and liquidity

The Reserve Bank of India cut its key policy rate by 25 basis points to 6%—its second rate cut this year—thanks to its benign inflation outlook (4%, down from 4.2%). The central bank, however, lowered its India GDP growth forecast for this financial year to 6.5% from 6.7%.

Announcing the decisions on Wednesday, RBI governor Sanjay Malhotra also said India was better placed to handle US President Donald Trump’s reciprocal tariffs since the domestic industry’s dependence on US exports was smaller than that of other nations.

Here are Malhotra’s responses on some key issues:

On Trump tariffs, inflation and GDP growth

Most of the forecasts now for the global GDP growth rate have come down by at least 20-30 basis points (bps). Not only for this year but even for next year. 

Similarly, on inflation, there is a mixed response globally. Especially for the US, it is forecast to go up because of the tariffs they will be imposing. For India, we have given our assessment. We have reduced the growth rate by 20 basis points this year primarily arising out of the uncertainties. 

On the inflation front, we have said it can move both ways because of the demand that is going to shrink as a result of the trade tariff friction… You are seeing that crude prices have also gone down. All in all, more than inflation, we are concerned about its impact on growth.

Also read | Mint Explainer: How RBI's latest rate cut, change in stance impact borrowers, depositors

My understanding is that the impact of these tariffs on India is much less compared to some of the other countries like China and some smaller countries. To that extent, we are better placed than some of the other countries. 

I mentioned it in my statement also that we have a comparative advantage as compared to some of these countries so far as the USA is concerned. However, overall it is certainly still a growth-dampener. 

On liquidity

With regard to liquidity, I already made a mention in the statement without giving any numbers. We will keep it sufficiently in surplus. I reiterate that we will provide sufficient liquidity for the purposes of monetary policy transmission. I do not want to give a number really as to what kind of a surplus, but sufficiently in surplus. 

You mentioned linking it to NDTL (net demand and time liabilities). Well, yes, that is the kind of number—about 1% or so—in the surplus range. Now that we are in the easing cycle, that is the kind of number that we will be looking at.

Also read | The MPC’s decision is the first scene of a whole new tariff-driven drama

On the rupee

Insofar as the currency management is concerned, we do not actually intervene in the currency management and it is only for excessive or disruptive volatility that we do. We do not try to manage or target any band or level of the Indian rupee. We don’t target any level. 

I think the markets in India are quite deep, quite wide, and the market forces best know what the levels should be. Having said that, in case of any excessive volatility that requires an intervention, we will not be found wanting.

Our currency is quite stable and we have sufficient reserves of almost $700 billion and inching up. Our deficit is very sustainable both this year and going forward. I really don’t think we are under any kind of a stressful position again. Our interconnectedness, especially on the trade side, is less.

Also read | RBI policy: Domestic growth takes priority amid global uncertainties