RBI in ‘wait and watch’ mode amid West Asia crisis: Governor Sanjay Malhotra

Reserve Bank of India Governor Sanjay Malhotra warns West Asia conflict may entrench inflation via supply shocks, prompting a wait-and-watch stance on interest rates. He highlights trade exposure, forex resilience, rupee flexibility, and ongoing digital initiatives like UPI and Unified Lending Interface platform

New Delhi:  The Reserve Bank of India (RBI) is closely monitoring the fallout from the West Asia conflict and will not make firm commitments on the future path of interest rates, Governor Sanjay Malhotra has said, adding that prolonged supply disruptions risk embedding inflation into India’s broader price level.

In his speech at Princeton University in the US, Malhotra said the ongoing conflict poses a direct threat to the Indian economy given the region’s outsized role in the country’s trade. Moreover, West Asia accounts for roughly one-sixth of India’s exports, one-fifth of its imports, half of its crude oil imports, two-fifths of its fertiliser imports, and nearly two-fifths of inward remittances, according to him, “Second-round effects are the real concern,” he stated.

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The RBI Governor warned that what begins as a supply shock can become embedded in the general price level if disruptions persist. He signalled that the central bank was in no hurry to move on rates. “We are in a wait-and-watch mode,” he said.

The monetary policy committee would remain data-dependent and would continuously reassess the balance of risks. The MPC has maintained a neutral stance since June 2025, following cumulative rate cuts of 125 basis points since February of that year.

Malhotra defended the RBI’s intervention in foreign exchange markets while stressing the bank had not committed to an “indefensible peg ” on the Indian rupee, which depreciated over four per cent following the conflict’s eruption in March.

In addition, India’s foreign exchange reserves stand at $710 billion, covering more than 11 months of imports. Malhotra also highlighted the RBI’s developmental agenda, citing progress on the Unified Lending Interface and the central bank’s digital currency pilot.

On digital infrastructure and growth, the RBI Governor said the Unified Payments Interface (UPI) recorded over 22 billion transactions in March alone, adding that the central bank is now developing the Unified Lending Interface (ULI) to enable instant credit access for small farmers and business owners. In addition, he said that the government’s fiscal deficit-to-GDP ratio had declined from 9.2 per cent in 2020-21 to 4.4 per cent in 2025-26.

He said that India’s general government debt-to-GDP ratio at 81.1 per cent in 2024–25 was reasonable, noting that most of the world’s top 10 economies by nominal GDP in US dollar terms, except Germany and Russia, had higher debt ratios than India.