New Delhi: Despite global turbulence caused by trade friction, mounting debt and geopolitical shocks, financial conditions have eased and banking systems remain broadly resilient. Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Friday. Within this landscape, India has distinguished itself as a rare anchor of stability, he added.
Speaking at the fourth Kautilya Conclave in New Delhi, Malhotra said India’s macroeconomic fundamentals – from robust foreign exchange reserves and low inflation since February to a narrowing current account deficit and strong bank balance sheets – have been built painstakingly over decades. “Despite all odds, the economy seems well settled into an equilibrium of resilient growth,” he said, crediting policymakers, regulators, and market participants with safeguarding stability. Malhotra contrasted India’s resilience with the fragility seen across advanced economies.
As of late September, India’s foreign exchange reserves stood at $700.2 billion, enough to cover more than 11 months of merchandise imports, according to the RBI. Meanwhile, the inflation outlook remains benign. Consumer price inflation came in at 2.07% in August, slightly higher than in July but still comfortably within the RBI’s 2-6% target band. An RBI survey in September also showed that households expected price pressures across key product groups to ease further.
Changing role of central banks
Against this backdrop, Malhotra noted that over the past two decades, central banks worldwide have been forced to pivot from being “steady guardians of price stability” to first responders in an era of relentless shocks, from the 2008 financial crisis and the eurozone debt meltdown to covid-19, Russia’s war in Ukraine, and climate-related disruptions. “You cannot control the storm, but you can certainly steer the ship,” he said.
For India, that steering involved a calibrated mix of aggressive monetary easing during the pandemic, decisive liquidity support with clearly defined exit timelines, and a rapid tightening cycle once inflation breached tolerance levels in 2022, Malhotra said.
He underscored the importance of coordination with fiscal policy which, he said, eased supply bottlenecks while adhering to a credible path of consolidation – a balance that prevented food-price shocks from seeping into core inflation.
Global underperformance warning
Looking ahead, Malhotra warned that the global economy would likely underperform its true potential for years. High tariffs, stretched public debt, and complacent equity markets presented risks that weren’t fully priced in, raising the spectre of fiscal dominance constraining monetary policy in several economies. “Perhaps gold prices now are showing the kind of movement that oil used to – that is, acting as a barometer of global uncertainty,” he added.
To be sure, India is not insulated from external pressures. On 6 August, the US imposed a 25% tariff on nearly all Indian exports, which was followed later that month by an additional 25% duty in retaliation for New Delhi’s discounted purchases of Russian oil. Simultaneously, conflicts in Ukraine and West Asia threaten to drive up energy prices, a particular concern for a country that’s heavily reliant on imports.
Even so, Malhotra emphasised that India had avoided major financial crises and remained among the fastest-growing large economies, with inflation projected to return to 4% by February 2025. Policy continuity, institutional resilience and reform momentum, he argued, allowed India to stand out in a volatile world.