Best Time For You To Apply For Loans: Interest Rates To Stay Low for ‘Long Period’

In a wide-ranging interview with the Financial Times published recently, Reserve Bank of India (RBI) Governor Sanjay Malhotra indicated a continuation of accommodative monetary policy with interest rates expected to remain low for a long period of time. 

This marks a significant shift in RBI strategy under Malhotra’s leadership, reflecting both robust economic growth and subdued inflation conditions that have materialised over the past year.

India’s headline consumer inflation has drifted well below the RBI’s target band, at just 0.7% in November 2025, a stark contrast to periods of elevated inflation seen in prior years. At the same time, the Indian economy grew sharply by 8.2% in the July–September quarter, outpacing earlier forecasts. 

As a result, rather than tightening, the RBI has eased policy, trimming the repo rate by a cumulative 125 basis points since late 2024 and signalling that this accommodative stance may persist.

The central message from Malhotra is that India is entering a prolonged “Goldilocks” phase, one of steady growth without overheating, prompting monetary policy to remain supportive even as global headwinds intensify.

Why the RBI Is Keeping Policy Easy

The RBI’s renewed stance on interest rates stems from a combination of economic growth resilience and low inflationary pressures. Malhotra emphasised that the economic position should remain favourable despite external challenges, reflecting a confidence among policymakers that the domestic economy can thrive even without tightening rates.

Despite headwinds, including rising tariff tensions with major trading partners like the United States, the Indian economy’s robust growth trajectory has strengthened the case for easy money. India’s GDP expanded at a rate of 8.2% in the latest quarter, significantly higher than the RBI’s earlier forecasts, prompting authorities to reassess traditional thinking on interest rates.

On inflation, although prices are expected to inch up slightly, with forecasts around 2.9% in early 2026, this remains comfortably within the RBI’s target range. With inflation subdued, there is no immediate pressure to increase the cost of borrowing to combat price pressures, facilitating a continued low-rate environment.

Governor Malhotra’s comments also stressed that the forecasts did not fully incorporate potential upside from pending trade agreements with the US and the EU, deals that could further bolster India’s growth outlook if finalised. He estimated that a US trade deal alone could add about 0.5 percentage points to growth, although details remain evolving.

Monetary Policy Trends in India: A Snapshot

Below is a summary of recent monetary policy dynamics that frame the RBI’s decision to signal extended low rates:
 

These measures and forecasts help explain why the RBI finds itself in a position to keep borrowing costs low, inflation is subdued, growth remains solid, and potential future trade deals may strengthen economic momentum further.

What Malhotra Meant by ‘Long Period’ of Low Rates

Governor Malhotra’s repeated emphasis on “a long period” for maintaining accommodative rates suggests a strategic pivot toward ensuring that growth remains sustainable and inclusive, rather than reacting pre-emptively to temporary fluctuations in inflation or global uncertainty.

In the interview, he defended the central bank’s forecasting and economic data quality, while acknowledging some margins of error. The RBI’s approach appears calibrated to support credit demand, investment, and consumption, pillars of India’s economic expansion, without stoking inflation.

The governor also highlighted that monetary policy decisions have focused on achieving a balance: allowing markets to function freely (such as a less interventionist stance on the rupee) while steering inflation within the target range.

Reactions from Markets and Financial Observers

While the RBI’s stance is outwardly dovish, market reactions have been mixed. For instance, despite the repo rate cuts and liquidity injections, India’s fixed-income markets saw yields rise, as traders anticipated the possibility that the current easing cycle may be nearing its end. 

This reflects a broader market perception that, even if official policy remains accommodative, longer-term rates are driven by global capital flows and inflation expectations.

Financial analysts argue that the RBI’s low-rate signal helps minimise borrowing costs for households and businesses but may also mean less room for future rate cuts if external challenges intensify. Nonetheless, favouring stability over tightening reflects a policy consensus that avoids choking off growth prematurely.

What This Means for the Broader Indian Economy

For consumers, expectations of extended low interest rates generally mean cheaper borrowing costs, for mortgages, personal loans, and business credit — which can stimulate spending and investment.
For businesses, easier credit conditions can reduce financing costs and support capital expenditure plans, particularly for MSMEs and export-oriented sectors.

However, there are potential risks. Sustained low rates over long periods can pressurise banks’ net interest margins and influence savers negatively, potentially reducing deposit growth if returns on savings remain low. Additionally, keeping rates low may limit policy space if inflation resurges sharply or global conditions deteriorate suddenly.

Conclusion

India’s central bank — under Governor Sanjay Malhotra — is signalling a rarer phase of extended accommodative policy where low interest rates persist through much of 2026 and potentially beyond. This stance is driven by a combination of strong GDP growth, weak inflation, and global uncertainties that counsel prudence.

While markets continue to react and analysts debate the pace and timing of future moves, the RBI’s message is clear: monetary policy will remain supportive for growth. As India navigates shifting global trade dynamics, volatile currency markets, and internal economic opportunities, this “Goldilocks” phase could define the macroeconomic backdrop for households, investors, and firms alike well into the coming year.
 

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