Reserve Bank of India Governor Sanjay Malhotra has outlined three primary factors driving India's sustained low inflation, which has remained below the central bank's target range of 2% to 6% for four consecutive months despite external headwinds and geopolitical challenges.

In an exclusive interview with NDTV Profit's Managing Editor Tamanna Inamdar, Governor Malhotra explained that the combination of softer food prices, flexible inflation targeting regime, and supply-side actions has created a favorable inflation environment supporting the Indian economy.

Food Price Dynamics and Base Effects

Governor Malhotra identified softer food prices as the first major driver, attributing this trend to significant base effects. "We had a very high food inflation earlier and so from a higher base, inflation now seems to be lower," he explained.

The recent inflation data demonstrates this trend clearly:

The RBI Governor emphasized that global commodity prices have also remained low, making this "more a supply-side phenomenon rather than a demand-side phenomenon." He noted that core inflation stands at 4.6%, but excluding precious metals inflation, it drops to just 2.3%.

Flexible Inflation Targeting Framework

The second key factor highlighted by Governor Malhotra is the flexible inflation targeting regime implemented by the RBI. The central bank maintains a standard target of 4% with a 2% band on either side, creating the 2-6% range.

"Over the years, ever since the central bank implemented the flexible inflation targeting, India's inflation levels have actually come down," Malhotra stated. He acknowledged that while this framework isn't the sole reason, it has contributed significantly alongside policy frameworks and government supply-side actions.

The RBI has completed a consultation paper on inflation targeting and submitted recommendations to the government, which will set future targets based on these inputs.

Supply-Side Actions and Policy Support

Governor Malhotra credited supply-side actions by the government and other stakeholders as the third crucial element in maintaining low inflation. These coordinated efforts have complemented the monetary policy framework to create a comprehensive approach to inflation management.

Forward-Looking Inflation Projections

The RBI expects inflation to gradually increase as base effects diminish. The central bank's projections indicate a controlled upward trajectory:

Consumer Impact and Survey Results

Addressing whether common citizens are experiencing the benefits of low inflation, Governor Malhotra referenced positive consumer survey responses. "Even in the consumer surveys, we find that the inflations that they feel or project are generally higher from what are actually reported, but they have come down," he noted.

The data from the Ministry of Statistics and Programme Implementation (MOSPI) clearly reflects the downward inflation trend, with consumer surveys indicating that people are indeed feeling the impact of lower prices.

Governor Malhotra expressed comfort with current inflation levels, particularly given the projected gradual increase ahead. The combination of supply-side improvements, effective monetary policy framework, and favorable base effects has created an environment where inflation remains well within manageable bounds while supporting economic growth.

Source: https://www.ndtvprofit.com/economy-finance/flexible-target-regime-to-softer-food-prices-rbi-governor-outlines-indias-low-inflation-story

The Reserve Bank of India has implemented substantial open market operations as part of its monetary policy framework, purchasing government securities worth over ₹5 lakh crore since April 2025. These strategic interventions are designed to maintain adequate liquidity in the financial system while keeping lending rates under control.

Open Market Operations Scale

The central bank's bond purchasing program represents a significant monetary policy tool deployment. The following table highlights the key aspects of these operations:

Monetary Policy Objectives

The RBI's extensive bond buying program serves multiple monetary policy objectives. The operations are specifically targeted at ensuring sufficient money supply in the banking system, which directly impacts the lending environment. By purchasing government securities, the central bank injects liquidity into the financial system, providing banks with additional resources for lending activities.

These interventions help maintain stability in the interest rate environment, supporting the broader economic framework. The scale of operations indicates the central bank's commitment to managing monetary conditions effectively.

Market Impact

The substantial volume of government securities purchased through open market operations demonstrates the RBI's proactive approach to monetary management. These operations influence market liquidity conditions and help maintain the desired monetary policy stance.

The bond buying program supports the central bank's broader mandate of maintaining price stability while supporting economic growth through appropriate monetary policy measures.

Source: https://www.cnbctv18.com/business/finance/rbi-may-have-to-buy-more-bonds-to-check-borrowing-rates-ws-l-19819857.htm