'Will not shy away from taking policy steps if needed', RBI Governor's big statement amid tariff war

Amidst the tariff war, RBI Governor Sanjay Malhotra said that the central bank is keeping an eye on the rapidly evolving global situation closely and won't hesitate to make policy interventions if necessary. The Indian economy and financial markets have been very resilient, he stated. But he warned that the economy and financial markets aren't insulated from the vagaries of the turbulent global setting.

Speaking at the 24th FIMMDA-PDAI Annual Conference in Bali on Friday, Malhotra said, "Given the rapidly changing global conditions, we are constantly monitoring and assessing the economic scenario. We will remain active and prompt in our action on the policy front as always." He said that the growth rate and inflation balance have improved significantly, and inflation is also within the tolerable range.

The governor said that despite this, global uncertainties and weather disturbances can pose risks in terms of inflation. He said, 'Even though we have projected 6.5 percent real GDP growth for the financial year 2025-26, India is still the fastest growing economy. Still, it is much less than our expectations. We have cut repo rates twice and given adequate liquidity.' 

Regarding the Indian financial markets, the governor said that all market segments, including the foreign exchange market, government securities, and money market, have remained largely stable. He said that the rupee had come under a bit of pressure a few months ago, but after that, its performance has been better, and it has regained some of the lost ground.

Malhotra said, "Today, the financial markets are standing at the cusp of change amid global and domestic challenges, unprecedented opportunities, and rising public expectations. When such changes take place, there are many moving parts in it, which need to come together like pieces of a puzzle. Many stakeholders have an important role to play." He stressed that India is constantly moving forward to achieve its rightful place in the global system, and at such a time, the financial markets will have to play an important role. He said that to realize the aspirations of the country, financial markets will need to facilitate efficient and cost-effective financing.

India's foreign exchange market has seen strong growth in recent years. The average daily turnover in 2020 was $ 32 billion, which is almost doubled to $ 60 billion in 2024. The RBI governor said that the foreign exchange market is not the only market that has grown. The overnight money market has also expanded, and the daily volume has increased by 80 per cent. It has increased from around Rs 3 lakh crore in 2020 to over Rs 5.4 lakh crore in 2024. Similarly, the average daily volume in the government securities market has increased by 40 per cent and reached Rs 66,000 crore in four years.

Regarding the huge role of financial markets, Malhotra said that these are not only places to raise capital and trade assets but are also key enablers of economic growth. He also shared that despite global challenges, India's government securities market remained stable throughout the year. He said, "Our markets have matured and advanced by learning from crises to meet the needs and aspirations of the country. The infrastructure of our markets is state-of-the-art. The level of transparency is at par with the best in the world.