RBI’s calm bet: why the governor isn’t rushing to cool 18% credit growth

Reserve Bank of India Governor Sanjay Malhotra has signalled that the central bank is in no hurry to react to the current mix of elevated inflation and rapid credit expansion, striking a composed tone in an interview with Doordarshan News.

Malhotra described price pressures as “contained” even though inflation is “currently a bit elevated,” attributing the rise largely to supply-side disturbances rather than an overheating economy. Consumer price inflation is projected at roughly 5.1% for the year — a figure he termed “slightly above our target” — but said it is being driven by specific sectors and supply shocks rather than broad demand pressure.

On credit, the governor noted that overall growth is running close to 18%, with MSME lending and gold loans expanding even faster, at 24-25%. He contrasted this with the microfinance sector’s excesses of roughly two years ago, saying the RBI does “not see immediate distress” in the current expansion, while adding that fast-growing segments are being watched closely to guard against future slippages.

Malhotra framed the RBI’s dual mandate as complementary rather than conflicting: “our primary objective is price stability, growth is our secondary objective…these two objectives are not contradictory. They support each other,” he said, explaining the central bank’s willingness to tolerate near-term price pressures without slowing growth-supportive credit conditions.

He also highlighted broader economic resilience, noting growth remains steady despite global turbulence, underpinned by domestic demand and investment. On inflation measurement, Malhotra said the RBI’s approach is increasingly granular: “When we talk about headline inflation…we also look closely at its composition,” indicating that policy responses will be guided by the underlying drivers of price changes rather than the headline figure alone.

Taken together, the governor’s comments suggest the RBI’s near-term policy stance will prioritise sustaining credit flow and growth momentum, while keeping a close watch on inflation composition and fast-expanding loan segments rather than making abrupt policy shifts.

Wikimedia Commons/by Nichalp