India’s new central bank governor said the economy would probably rebound this year on the back of strong consumer and business confidence, his first public comments about the growth outlook since he took office earlier last month.
“Prospects for the Indian economy are expected to improve,” Reserve Bank of India (RBI) Governor Sanjay Malhotra wrote in the foreword of the biannual Financial Stability Report released on Monday.
“Consumer and business confidence for the year ahead remain high and the investment scenario is brighter as corporations step into 2025 with robust balance sheets and high profitability,” he said.
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Malhotra, a career bureaucrat, was a surprise candidate when he was appointed to the post just two days before his three-year term began on Dec. 11.
In a news briefing to mark his appointment, he said stability and growth were important to the economy, although he steered clear of giving any guidance on the outlook and possible future moves on monetary policy.
Under previous governor Shaktikanta Das, the RBI kept interest rates unchanged for almost two years despite growing calls, including from within the government, to ease. Economists expect Malhotra to shift gear and possibly cut interest rates as early as next month.
The economy grew at its weakest pace in almost two years in the past quarter, prompting analysts and the RBI to pare back growth projections for the current fiscal year to about 6.5 percent, down from more than 8 percent in the previous fiscal year that ended in March last year.
The RBI said in its Financial Stability report that growth in the third and fourth quarters of the financial year is expected to recover “supported by pick up in domestic drivers, mainly public consumption and investment, strong service exports and easy financial conditions.”
On the global economy, Malhotra said prospects are brighter because of a slowdown in inflation, and monetary policy space would open up to support growth.
Over the medium term, the outlook “remains challenging,” he said, citing possible geopolitical tensions, financial market turmoil, extreme climate events and rising indebtedness.
The new governor said the RBI would remain focused on financial stability to support “a higher growth path for the Indian economy.”
The financial sector was bolstered by robust earnings, low levels of impaired assets and strong capital buffers, he said.
The RBI’s stress tests revealed that capital levels of the banking system and nonbanking financial companies remain well above the regulatory requirement, the report said.
