India could cut interest rates as soon as February after RBI governor surprises | Real Time Headlines

India has appointed a new central bank governor to replace long-time governor Shaktikanta Das in a surprising move that some market observers say strengthens the case for a rate cut early next year. prospect.

Sanjay Malhotra, the new governor of the Reserve Bank of India, who currently serves as revenue minister in the finance ministry, must delicately balance the need to prevent one of the world’s fastest-growing major economies from going into trouble with the need to control stubbornly high inflation.

Malhotra, an alumnus of the elite Indian Institute of Technology and Princeton University, has recently raised concerns about the health of the economy. Analysts said Malhotra’s surprise appointment could lead to a shift toward more dovish monetary policy in China, which is expected to become the world’s third-largest economy by the end of the century.

On the other hand, Das is widely regarded as the most hawkish member of the Reserve Bank of India’s monetary policy committee, so his departure could affect the currency, Shilan Shah, deputy chief emerging markets economist at Capital Economics, said in a note on Monday. The overall position of the Policy Committee.

“Mr Malhotra’s appointment is likely to set a new direction for the RBI,” Shah added.

Economists at Capital Economics now expect Malhotra to put India’s policy agenda at its first Monetary Policy Committee meeting in February, if not at an earlier unscheduled meeting. The repo rate was cut by 25 basis points. The group had previously predicted that rate cuts under Das would come in April.

Citi economists, who had predicted the Reserve Bank of India would cut interest rates in February, reiterated that view. The market seems to have the same expectations for loose monetary policy.

India’s 10-year government bond yield fell 2 basis points on Tuesday to 6.699%, data from the London Stock Exchange showed, signaling expectations of a rate cut, while the rupee hovered near a record low of 84.83 against the dollar.

Das to resign as one of the members of Reserve Bank of India (RBI) longest serving governor Since India gained independence from Britain in 1947.

During his tenure, he led India’s financial sector through a period of recovery, normalized relations between the Reserve Bank of India and the government, and steered the economy through the Covid-19 pandemic.

However, the recent economic backdrop has become more challenging. India’s economic growth rate the slowest pace The three months to September marked seven consecutive quarters of inflation, with October’s rate slightly above the central bank’s 6% tolerance band for the first time in more than a year.

The weakening economy has prompted calls for lower interest rates, including from top government officials.

In November, the Union Minister for Commerce and Industry Piyush Goyal Urging the Reserve Bank of India to cut interest rates To promote growth, Finance Minister Nirmala Sitharaman also called for More affordable interest rates Support local industry.

At the December meeting, tMPC voted by 4:2 margin The policy repo rate remains unchanged at 6.50%.

Although the central bank lowered India’s GDP growth forecast for fiscal 2025 to 6.6% from 7.2% in October, Das expressed confidence that the domestic economic slowdown had “bottomed” in the September quarter.

However, Dhiraj Nim, India FX strategist and economist at ANZ Bank, said the finance ministry has a weaker view on economic growth than the Reserve Bank of India, which could influence incoming Governor Malhotra’s thinking at his first monetary policy meeting .

ANZ has predicted that the Reserve Bank of India will implement a total of three interest rate cuts starting in February 2025. Inflation excluding food is weak enough to cut interest rates to support economic growth.

“The appointment of the incoming governor will only heighten expectations for this event,” Nim said.

—CNBC’s Ruxandra Iordache and Anniek Bao contributed to this report.