India replaces central bank governor in a surprise move. business and economy news
The new governor will have to deal with challenges as India’s economic growth slows and inflation rises.
India has appointed career civil servant Sanjay Malhotra as its new central bank governor in a surprise move that has the market speculating about the future direction of monetary policy.
Financial markets were hopeful that current Reserve Bank of India Governor Shaktikanta Das would be given a second extension when his tenure ends on Tuesday.
Malhotra, whose appointment was announced on Monday, is currently the Revenue Secretary in the Finance Ministry. He has worked in financial services, power, taxation and information technology in a career spanning three decades.
His appointment as Governor of the Reserve Bank of India (RBI) for a three-year term comes after a decline in the country’s economic growth and a rise in inflation.
“Not only are we dealing with a sharp growth-inflation trade-off and a changing global environment, but we are also dealing with a new set of monetary policy makers,” said Madhavi Arora, chief economist at Emkay Global.
“A possible change in the deputy governor in charge of monetary policy following a change in the governor ahead of the February monetary policy review would mean considerable uncertainty for markets,” he said.
RBI Deputy Governor Michael Patra’s tenure is also set to end in mid-January and the government is looking for his replacement.
Both the Governor and the Deputy are part of the six-member Monetary Policy Committee (MPC).
challenges ahead
The country’s economic growth slowed in seven quarters in the September quarter and inflation rose above the central bank’s six percent tolerance band for the first time in a year, posing a challenge to the monetary policy committee.
One of the longest-serving RBI governors since India’s independence from British rule in 1947, Das took up the role in 2018 after previous governor Urjit Patel resigned following a difficult relationship with the government.
Das helped stabilize that relationship while overseeing a period of India’s financial sector reform and more recently led an effort to curb the buildup of risk, including requiring lenders to avoid all “forms of exuberance.” It was said.
The central bank has been seen as more interventionist under Das’s leadership, which has brought exchange rate volatility down to its lowest level in the decade.
Malhotra has not publicly expressed his views on growth or inflation since joining the finance ministry, but he is known as a consensus builder.
Officials who have worked with him say he is growth-focused and believes central bank policy needs to be aligned with government policy to manage inflation.
Economists at Capital Economics said they expect India’s repo rate to be cut by 25 basis points in Malhotra’s first MPC meeting in February, compared to April under Das.
In his current role, Malhotra has clashed with the central bank on several occasions, including over registering cryptocurrency platforms with the financial intelligence unit when the bank wanted to curb the use of cryptocurrencies in the country.
Malhotra also took important decisions on disinvestment of the state’s Life Insurance Corporation of India and sale of the government’s stake in IDBI Bank.
