Short-term fluctuations, including FDI outflows, closely monitored: RBI Governor Sanjay Malhotra
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500+ questions on Economy with explanations
📌 Summary:
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RBI Governor Sanjay Malhotra stated that the central bank is "closely monitoring" short-term fluctuations in capital flows, specifically Foreign Direct Investment (FDI) outflows and portfolio investment volatility, amid heightened global uncertainty from West Asia tensions and US tariff developments
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India saw net FDI outflows of ~$2.7 billion in Q3 FY26 — the first sustained quarterly outflow in over a decade — attributed to global risk-off sentiment, profit repatriation by MNCs, and rising US interest rates making dollar assets more attractive
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The Governor affirmed that India's forex reserves (~$650 billion, ~11 months import cover) provide a "strong buffer" and that RBI has the tools and willingness to intervene in the currency market to curb excessive volatility
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RBI's strategy: intervening in both spot and forward forex markets; using liquidity management tools (repo/reverse repo) to maintain interest rate differentials; ensuring adequate credit flow to productive sectors
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India's Balance of Payments (BoP) remains broadly resilient: services exports (IT, BPO) and remittances continue to provide cushion; current account deficit is within manageable range (~2% of GDP)
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Key concern flagged: If FDI outflows persist alongside oil-driven current account deterioration, the rupee could face significant depreciation pressure — RBI is monitoring this double-risk scenario
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RBI policy stance: Malhotra reaffirmed the "withdrawal of accommodation" stance; signalled readiness to cut rates further in H2 FY26 if inflation moderates, but warned against premature easing
🔍 UPSC Relevance:
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RBI's role in forex management, FDI vs FPI, Balance of Payments, capital account — GS3 Economy core topic
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RBI Governor appointments, monetary policy framework, exchange rate management
⚡ Prelims Facts:
- RBI Governor: Sanjay Malhotra (appointed Dec 2024) | India forex reserves: ~$650 billion | FDI Q3 FY26: net outflow ~$2.7 billion | BoP current account deficit: ~2% GDP | RBI tools: repo rate, CRR, SLR, forex interventions | India's services exports FY25: ~$340 billion
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