RBI Rate Pause Was Prudent; West Asia Uncertainty Biggest Risk: Expert

Speaking to ANI, Iyer said that both a rate hike and a rate cut would have posed challenges in the current uncertain global environment.

"If there had been a rate increase, it could have potentially killed demand, which at this point is largely domestically driven given the global situation. That would not have been a good decision," he said.

He added that a rate cut would also not have been suitable, as it could have triggered capital outflows and added pressure on inflation.

"A reduction in rates could have led to foreign capital leaving the country and may not have helped in controlling inflation either. So both options were difficult decisions," he said, adding that maintaining status quo with a neutral stance was the most appropriate course of action.

Iyer emphasised that the current global backdrop, particularly the ongoing uncertainty around the West Asia conflict, makes it difficult for policymakers to take decisive rate actions.

"It is more about uncertainty than the war itself. If there was clarity--even if the war were to continue for a year--policymakers and businesses could plan accordingly. But right now, the lack of certainty is the biggest concern," he said.

He explained that uncertainty is preventing governments and businesses from making long-term decisions such as diversifying supply chains or securing alternative energy sources.

"Supplier relationships take time to change. Without clarity on how the situation will evolve, everyone is in a wait-and-watch mode," he added.

Highlighting the key risks to India's economy, Iyer said crude oil prices remain a major concern, given that India is a net energy importer.

"Higher oil prices impact inflation as well as the currency. While the government is working to secure supplies and manage retail prices, there is still a fiscal strain due to subsidies and support measures," he noted.

On how the RBI is balancing growth and inflation concerns, Iyer said the central bank is focusing on liquidity management and regulatory support rather than rate actions.

He pointed out that the RBI has taken steps to enhance liquidity by expanding participation in the term money market and increasing borrowing limits for standalone primary dealers.

"The RBI is clearly focused on maintaining systemic liquidity," he said.

On the overall economic outlook, Iyer said India's fundamentals remain strong despite global uncertainties.

"I believe the fundamentals of the Indian economy continue to be strong. Financial stability risks are almost non-existent as bank and NBFC balance sheets are healthy," he said.

He added that strong domestic drivers such as government infrastructure spending, rising private investment, and consumption growth will continue to support the economy.

"There is enough domestic growth momentum. Even if external demand weakens, India has sufficient internal drivers to sustain growth," he said.

Iyer also pointed to India's strong foreign exchange reserves, which stand at close to USD 700 billion, as a key buffer against external shocks.

"We have strong forex reserves and the ability to secure additional foreign currency lines if required. This gives us the strength to navigate global disruptions," he said.

- ANI