Year Ender 2024: The Reserve Bank of India (RBI), under the leadership of former Governor Shaktikanta Das, ignored the pressure to cut interest rates in 2024 and kept its main focus on inflation. Now, under the leadership of the new chief, the central bank will soon have to decide whether it can continue to give priority to inflation at the expense of economic growth.
Bureaucrat Shaktikanta Das had overseen the entire matter after the demonetization decision by Prime Minister Narendra Modi in 2016. He has left a lasting legacy: he efficiently conducted monetary policy for six years. Shaktikanta Das is credited with leading India’s revival during the Covid-19 pandemic.
After the completion of Das’s second term at the end of 2024, the government has appointed Revenue Secretary Sanjay Malhotra as the new governor. Later in the year, another bureaucrat, Sanjay Malhotra, was appointed as Das’s successor. Malhotra was appointed just 24 hours before the end of Das’s second three-year term. After the completion of Das’s second term at the end of 2024, the government has appointed Revenue Secretary Sanjay Malhotra as the new governor.
Under the leadership of Shaktikanta Das, RBI kept the key policy rate repo unchanged for almost two years, however, the economic growth rate has fallen to the lowest level in seven quarters in the July-September quarter of the current financial year.
With the new Governor taking charge and increasing disagreement in the Interest Rate Setting Committee (MPC) in favor of cutting interest rates, all eyes are now on the monetary review meeting of RBI in February. Everyone is waiting to know what is the stand of MPC in the February meeting.
After his appointment in the same month, some analysts believed that Malhotra’s arrival strengthened the chances of an interest rate cut in February, but some events, notably the US Federal Reserve, indicate less interest rate cuts in 2025. Given its impact on the rupee, some people have started raising the question whether this is the right time to cut interest rates.
Some observers are also questioning whether a mild interest rate cut of 0.50 per cent – as is widely expected given inflation expectations – will be in any way useful for economic activity. Das, who joined the central bank after a long career as a bureaucrat, had said he worked as per the provisions that focus on inflation while remaining conscious of growth.
The six-member Monetary Policy Committee had unanimously decided to change the policy stance to ‘neutral’ in October 2024. In his last policy announcement, Das had cited the economic growth rate of 5.4 percent in the July-September quarter and inflation going above the satisfactory level of six percent in October, saying that the growth-inflation dynamic has become unstable. RBI has kept the key rates unchanged for the bi-monthly policy review for 11 consecutive times.
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