RBI Wins the Battle Against Inflation – But the War Continues

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25 Jul, 2025

RBI Wins the Battle Against Inflation – But the War Continues

India’s fight against inflation has shown meaningful progress. In a recent statement, RBI Governor Sanjay Malhotra affirmed that the central bank has effectively tackled short-term inflation pressures, but acknowledged that the larger battle for price stability is still ongoing.

This statement is significant as it highlights the nuanced position of monetary policy amid evolving macroeconomic trends.

What Did Governor Malhotra Say?

We have won the battle, but the war against inflation continues. It’s a long-term effort to keep inflation within the target range while supporting economic growth,” – Sanjay Malhotra, RBI Governor.

He emphasized that while the Consumer Price Index (CPI) has remained within the RBI’s 4% target for several months, persistent risks like food price shocks, global commodity volatility, and fiscal spending could re-ignite inflationary pressures.

Key Takeaways from the Statement:

1. CPI Inflation Under Control

Headline inflation has remained under 4% for five consecutive months, reflecting the effectiveness of previous rate hikes and liquidity tightening.

2. Food Inflation Is Still a Concern

Vegetable prices, cereal shortages due to erratic monsoon, and milk inflation remain volatile and can lead to short-term spikes.

3. Rupee Volatility Needs Monitoring

The recent depreciation of INR against USD could import inflation through higher crude and raw material costs.

4. Policy Vigilance to Continue

RBI is unlikely to cut interest rates too soon, preferring a watchful pause to avoid reigniting price pressures.

5. Growth vs Inflation Dilemma

While inflation has cooled, RBI must balance it with the need to stimulate private investment and support consumption — especially in rural India.

How It Will Impact the Indian Markets

1. Positive for Bond Market

The confirmation of inflation moderation could bring down long-term bond yields, improving government borrowing costs and investor confidence.

2. Mixed for Equity Markets

While easing inflation is good for consumer and rate-sensitive sectors (FMCG, banks, autos), the delay in rate cuts could dampen short-term enthusiasm in growth-oriented sectors.

3. INR Outlook

Although inflation is under control, rupee weakness and capital outflows can put pressure on currency stability, especially with global uncertainties.

4. RBI’s Stance Supports Macro Stability

Investors can take comfort that RBI is not rushing into policy easing and is prioritizing macroeconomic stability, which bodes well for long-term India story.

Final Thoughts

The RBI’s vigilant yet balanced approach is a reassuring sign for the Indian economy. By acknowledging both success and remaining threats, the central bank reinforces its credibility and independence. While inflation is cooling, the macro landscape remains dynamic.

Investors should stay informed, remain diversified, and align with India’s long-term growth outlook.

By Nehal Taparia

This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.

Our Recent FAQS

Frequently Asked Question &
Answers Here

Q1: Has India defeated inflation completely?

No. RBI Governor Malhotra said the short-term battle is won, but risks still exist. Inflation could rise again if food or global commodity prices spike.

Q2: Will RBI cut interest rates soon?

Unlikely in the next policy meet. The RBI may maintain a pause, observing data closely before initiating any rate cuts.

Q3: How does this affect stock markets?

Positively for sectors like banking, consumption, and infrastructure due to improved inflation outlook. But rate-sensitive rallies may pause.

Q4: Will this help the bond market?

Yes. If inflation stays below 4%, bond yields may soften, boosting debt mutual funds and G-Sec attractiveness.

Q5: Is this good for common people?

Yes. Controlled inflation means lower prices, better purchasing power, and stable interest rates on loans and EMIs in the long run.

Q6: How should investors respond?

Investors should stay invested in high-quality equity, consider duration-based debt funds, and avoid panic over short-term volatility.