Introduction
On April 9, 2025, Reserve Bank of India (RBI) Governor Sanjay Malhotra delivered the Monetary Policy Statement following the 54th meeting of the Monetary Policy Committee (MPC). During his address and the subsequent press conference, he addressed several key economic issues, focusing particularly on the impact of US tariffs, the stability of the rupee, and liquidity management. This report summarizes his key statements on these critical economic matters.
On Trump Tariffs and Growth Impact
Governor Malhotra expressed significant concern about the impact of recently imposed US tariffs on India’s economic growth prospects, leading the RBI to revise its growth forecasts.
“My understanding is that the impact of these tariffs on India is much less compared to some of the other countries like China and some smaller countries. To that extent, we are better placed than some of the other countries,” Malhotra stated during his press conference Mint.
However, he emphasized that despite India’s relative resilience, global trade uncertainties will still have a dampening effect on growth. He noted that “higher tariffs shall have a negative impact on net exports” Economic Times.
The governor highlighted that the central bank has revised its FY26 growth forecast from 6.7% to 6.5%, reflecting the anticipated impact of global trade and policy uncertainties. Providing context to this adjustment, he mentioned that India’s overall exports represent approximately 12% of GDP, with exports to the USA being less than 2%, compared to higher export percentages for countries like China (19%), Germany (37%), and the EU (over 30%) Economic Times.
Malhotra further explained that there are several “known unknowns” that complicate accurate forecasting, “such as the impact of relative tariffs and the elasticities of export and import demand, making it difficult to quantify the adverse impact” Economic Times.
In a notable statement, the governor emphasized, “Worried about impact on growth than inflation,” indicating that while inflation concerns have eased, the potential growth slowdown from trade tensions remains the primary concern India Today.
On Rupee Management and Stability
Addressing concerns about currency management amidst global trade tensions, Governor Malhotra clarified the RBI’s approach to the rupee-dollar exchange rate.
“So far as currency management is concerned we do not actually intervene in order to target a particular price level,” the governor emphasized, making it clear that the RBI does not aim for specific levels or bands for the rupee-dollar rate Deccan Herald.
This statement came in response to questions about potential currency management strategies, particularly in light of reports that China might use yuan depreciation as a tool to counter US tariffs.
Malhotra reassured markets that “the rupee remains quite stable despite the global trade war and currency movements in other markets” India Today.
He also emphasized the RBI’s preparedness to manage any external pressures, stating, “the RBI has enough foreign exchange reserves to handle any pressure on the rupee if needed” India Today.
On Liquidity Management
The governor outlined a clear approach to maintaining system liquidity to support monetary policy transmission.
“With regard to liquidity, I already made a mention in the statement without giving any numbers. We will keep it sufficiently in surplus,” Malhotra stated Mint.
He provided more specific targets during his press conference, saying the RBI is “looking at a level of around 1% of deposits,” which equates to approximately 2 trillion rupees ($23 billion) based on current market estimates of total deposits at 250 trillion rupees Reuters.
The governor emphasized flexibility in this approach, adding, “I would not like to pin myself down to the 1% number exactly, but that is the kind of range, near about that range. If more is required, we will do more; if less is required we will do less” Reuters.
Malhotra also detailed recent developments in liquidity conditions. “In January 2025, system liquidity was in deficit, with the net injection under the liquidity adjustment facility (LAF) peaking at Rs 3.1 lakh crore on January 23. However, a series of liquidity-boosting steps totalling about Rs 6.9 lakh crore helped reduce this deficit through February and March.” By March 29, the system had shifted to a surplus, which continued to improve with “As of April 7, 2025, system liquidity stood at a surplus of Rs 1.5 lakh crore” Economic Times.
The governor explained the rationale behind maintaining adequate liquidity, stating, “The main aim is to mention proper transmission of repo rate into interest rates” Reuters. This focus on transmission aligns with the RBI’s shift from a “neutral” to an “accommodative” stance, which signals the possibility of further rate cuts.
Recent Policy Actions
The broader context for these statements is the RBI’s decision to cut the repo rate by 25 basis points to 6% and change its policy stance from “neutral” to “accommodative.” This marks the second consecutive rate cut in 2025, reflecting the central bank’s priority to support growth amid global uncertainties.
The governor indicated that with this accommodative stance, “going forward, absent any shocks, the MPC is considering only two options – status quo or a rate cut” Economic Times.
To support its liquidity management objectives, the RBI has implemented several measures:
- Infused 5.41 trillion rupees into the banking system via bond purchases and forex swaps
- Set plans to buy another 400 billion rupees in bonds in April
- Conducted daily overnight repos since mid-January to address liquidity deficits
- Begun reviewing its liquidity management framework to optimize monetary policy transmission Reuters
Conclusion
Governor Sanjay Malhotra’s statements indicate a balanced yet concerned approach to managing the Indian economy amid escalating global trade tensions. While acknowledging that India may be less affected by US tariffs than some other countries, the RBI has taken preemptive measures by cutting rates and adopting an accommodative stance to support growth. The central bank remains vigilant about the rupee’s stability without targeting specific levels, while maintaining sufficient liquidity to ensure effective monetary policy transmission. These statements and actions reflect the RBI’s focus on navigating global uncertainties while supporting domestic economic growth.
