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Supporting RBI's cautious monetary policy amid growth slowdown

Published July 26, 2026 at 10:33 AM UTC

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The slowdown in India's private sector growth, while concerning, validates the Reserve Bank of India's (RBI) strategy of prioritizing inflation control over short-term growth. By raising interest rates aggressively in 2022-23, the RBI has successfully brought headline inflation down from near 8% to within its tolerance band. The current moderation in economic activity is a necessary cost to prevent inflationary expectations from becoming entrenched. If the RBI had acted less decisively, the economy could have faced a more painful stagflation scenario. Higher borrowing costs are indeed squeezing some businesses, but the banking system remains well-capitalized, and credit growth is still healthy in segments like infrastructure and services. The slowdown is also partly cyclical, as post-pandemic demand normalizes. Moreover, the RBI's pause since April gives room for the past rate hikes to work through the system. A premature pivot to rate cuts could reignite inflation and erode the credibility of the central bank. For the long-term health of the economy, it is better to endure a period of slower growth now than to face runaway prices that hurt the poorest the most. The RBI's data-driven approach, focusing on core inflation and underlying demand, deserves continued support.