Sanjay Malhotra, a seasoned civil servant and former revenue secretary, assumed the role of India's central bank governor on Wednesday, stepping into the position as the nation grapples with slowing economic growth and soaring inflation.
Malhotra begins a three-year tenure at the helm of the Reserve Bank of India (RBI), taking over from Shaktikanta Das, who concluded an extended six-year term.
India's economic growth decelerated to 5.4% in the latest quarter, marking the slowest pace in nearly two years, while inflation surged to 6.2% in October—well above the RBI's 4% target. The spike in inflation has been largely driven by a steep rise in vegetable prices.
An editorial in The Indian Express noted, “Malhotra faces the challenge of navigating the RBI through a period of global and domestic uncertainty, with increasing calls to ease policy rates to support growth.”
Despite rising food prices, the central bank under Das held interest rates steady at 6.5% last Friday, a level maintained since February 2023. However, it lowered the cash reserve ratio for banks from 4.5% to 4%, aiming to ease monetary conditions and bolster growth.
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Economists anticipate that inflationary pressures may ease in the coming months, potentially paving the way for a rate cut in the spring.
“Structural weaknesses in India’s economy, including weak job growth and low wages, are restraining demand as urban consumer spending slows,” Shumita Deveshwar of TS Lombard highlighted in a recent report.
The RBI has also revised its economic growth forecast for the current fiscal year (April-March) to 6.6%, down from an earlier projection of 7.2%. The downgrade reflects a slowdown in key industries such as mining, petroleum products, iron and steel, and cement.
Nonetheless, the central bank expressed optimism for an industrial recovery, supported by increased government spending post-monsoon.
“Supply chain pressures eased in October-November, falling below historical averages. Meanwhile, the services sector remains robust,” the RBI stated.
Source: With inputs from agencies