Mumbai, April 8 Reserve Bank Governor Sanjay Malhotra expressed confidence on Wednesday that interest rates will remain low in the medium to long term, given the benign inflationary conditions.
Addressing the media at a post-monetary policy conference, Malhotra said the Indian economy is very strong, resilient, and robust.
"We are in a neutral state…the possibility of either way, any way, cannot be ruled out that low rates (would) continue for a long time," he said.
Despite shocks, he said, the RBI is projecting a GDP growth of 6.9 per cent for the current financial year and stressed that this is not an optimistic estimate.
"Structurally, in the long term, macroeconomic fundamentals, because of various measures which the government has taken, which the RBI has taken, which various institutions have taken, remain very strong and continue to drive growth on one hand, and at the same time keep price pressures contained," he said.
"So, it's quite possible that even in the short to medium term, we will continue to have low rates," he added.
Malhotra said he does not expect any significant impact on credit growth due to the West Asia conflict, and added that there is no risk to asset quality at a systemic level as of now.
Earlier in the day, the Reserve Bank of India kept its key policy rate unchanged, adopting a cautious wait-and-watch stance as policymakers assessed the impact of the six-week-long Iran conflict on energy supplies, inflation, and growth.
The central bank's six-member Monetary Policy Committee voted unanimously to keep the benchmark repurchase rate unchanged at 5.25 per cent, flagging heightened uncertainty after the West Asia conflict drove crude prices sharply higher, weakened the rupee, and disrupted trade flows.
On the transmission of a series of rate cuts by the RBI, Malhotra said banks have passed on about a 90-basis-point reduction on the lending side against a 125-basis-point moderation in the repo rate.
"Similarly, on the deposit side, it's more than 100. So, there has been a satisfactory transmission," he said.
Asked about measures taken on currency market curbs, he said these steps were taken to check excessive volatility of the rupee, and these are not in any sense a structural change.
"We stand committed to the development, broadening, and deepening of these markets...obviously, these are not measures which are going to remain there forever," he said.
These measures were taken in view of heightened volatility in the forex market in the last few weeks of the last month.
Meanwhile, replying to a question on real rates, which is the gap between the RBI's policy repo rate and the headline inflation, Malhotra said the differential is very high at 2 per cent, but declined to share his outlook given the uncertainties.
The RBI always prepares a core inflation outlook but decided to share it with the wider public on a request from the market, Malhotra said, stressing that this should not be construed as a shift in policymaking.
When asked if the RBI is considering any moves to curb speculation on the overnight index swap (OIS) market, as it did on the currency front, Malhotra said it is too thin a market.