Another rate cut if inflation slows? Here's what RBI Governor Sanjay Malhotra says

The Reserve Bank of India (RBI) may plan to cut interest rates further if inflation goes below its projection or growth comes under pressure, Governor Sanjay Malhotra stated. “The monetary policy committee will always factor in the evolving situation, the outlook, and then decide what the economy really needs,” Malhotra said during an interview with CNBC-TV18 on Tuesday. “Certainly, the policy rates can be cut” if inflation falls below the central bank’s forecast or growth stays weak, he noted. Although price stability remains the central bank’s main goal, growth is also an important factor. In its June monetary policy meeting, the central bank reduced its key rate significantly to support India’s slowing economy. “One cannot say inflation is more important than growth; it’s always the mix of both factors,” the RBI governor said. “Both are equally important, and I would not say we are giving more weight to either number at this point,” he added. Also Read | India bonds yields steady around key levels as RBI to mop up liquidity Sanjay Malhotra's remark comes a day after June inflation fell to the lowest in more than six years, mainly due to slowing food prices. The governor stated that the central bank will remain data-dependent moving forward, and there is an expectation that this year's inflation may fall below the 3.7 per cent forecast. On India's growth forecast Sanjay Malhotra stated that 6.5 per cent growth projection for India is "aligned with our expectations", though signals are mixed. “The monsoon is favourable, we’re seeing optimism in consumer surveys, trade deals are ongoing,” he said. Since February, the central bank has reduced the repo rate by 100 basis points, including a half-point cut and a move toward a more hawkish neutral stance in the recent policy meeting. On Tuesday, Malhotra stated that the RBI’s policy framework aims to align overnight borrowing costs with the benchmark repurchase rate, which is currently at 5.5 per cent. The framework seeks to achieve this by injecting or absorbing liquidity as necessary. Also Read | Loans to get cheaper as these banks cut their lending rates by 5 basis points Renewal of bank ownership rules The RBI is reviewing its regulations regarding bank ownership, which could result in allowing foreign banks to hold larger stakes in domestic lenders. The central bank is considering whether to permit foreign banks to hold a 26 per cent ownership stake in local banks as a "general matter of policy", according to the governor. At present, foreign investors, including portfolio investors, are allowed a 74 per cent stake in Indian banks. However, regulations limit a strategic foreign investor’s stake to 15 per cent. The RBI plans to review and approve an investor's request to increase their stake to 26 per cent. As the RBI simplifies the regulations, these uncertainties will be clarified, he said. When asked if the regulator would reconsider its long-standing concerns about allowing business conglomerates to own banks, the governor responded, "Conducting business and real economic activities within the same group presents a conflict of interest.”