Under RBI Governor Sanjay Malhotra, Rate Cut Expected In February 2025: Analysts – News18

Last Updated:December 11, 2024, 12:50 IST

The appointment of Sanjay Malhotra as the new RBI Governor “cements” the possibility of rate cut in February

The Government of India has appointed Revenue Secretary Sanjay Malhotra as the 26th Governor of the RBI

The appointment of Sanjay Malhotra as the new RBI Governor “cements” the possibility of a rate cut at the next policy review in February, analysts said on Tuesday.

Outgoing RBI Governor Shaktikanta Das was “sticking to his guns” on rates as seen at the December 6 meeting where the rate-setting panel headed by him continued with a status quo on rates, they said.

The Government of India has appointed Revenue Secretary Sanjay Malhotra as the 26th Governor of the RBI, effective Wednesday. The Appointments Committee of the Cabinet cleared his name for the prestigious position, with Malhotra set to serve a three-year term.

Monetary Policy Under Sanjay Malhotra to Be “More Accommodative”

Monetary policy under Malhotra, who is also a career bureaucrat, will be “more accommodative”, analysts at Japanese brokerage Nomura said, adding the rate cut at the February meeting is “cemented”.

RBI Rate Cut Expectations February 2025

Growth-Pushing Rate Cuts Anticipated

The brokerage added that the growth-pushing rate cut is also warranted at the next meeting.

Government-RBI Divide Over Monetary Policy

Over the past few weeks, a “stark divide” seemed to be emerging between the government and the RBI on the need for countercyclical monetary policy, the brokerage said, pointing out that both Finance Minister Nirmala SItharaman and Commerce Minister Piyush Goyal had criticised the RBI for keeping policy tight.

Domestic Brokerages Weigh In

Domestic brokerage firm Emkay said it “does not rule out” a rate cut in February but will be more comfortable taking a firm call closer to the policy window.

Sanjay Malhotra’s Appointment Reflects Government’s Preference

It noted that the decision to appoint Malhotra came down to the wire, and indicates the government’s comfort on having a bureaucrat rather than a technocrat at the RBI’s helm.

Limited Insights into Sanjay Malhotra’s Economic Views

Nearly all the analysts said that very little is known of Malhotra’s economic views, and Emkay cited their discussions with bankers to note that he is straightforward in policy communication, and in his past role at the Department of Financial Services, he would push banks to adopt and focus on technology.

Market Concerns About Government Influence

“With the new Governor coming from the Ministry of Finance, market participants could be inclined to think that might lead to a stronger role for the government in monetary policy decisions,” analysts at Swiss brokerage UBS said.

Balancing Growth and Inflation Risks

Malhotra will have to balance growth risk and the recent spike in headline inflation, they said, noting that Das maintained RBI’s autonomy, helped stabilise the relationship with the government, ensured financial stability (especially during the pandemic shock), and focused on financial inclusion and digital innovation.

Upcoming Appointments and Potential Market Volatility

Malhotra’s appointment comes as a surprise to the financial markets, and added that this will be followed with the appointment of a new RBI Deputy Governor incharge of monetary policy to replace Michael Patra in January.

MPC Composition and Rising Global Uncertainties

With five out of six Monetary Policy Committee (MPC) members relatively new – three new external MPC members joined only in October 2024 – this could add volatility to the markets amid rising global uncertainties related to Trump administration tariff proposals, it said.

Outlook for Policy Rate Cuts

“..We maintain our view that a high real policy rate and softening growth could create room for the RBI to lower the repo rate by 0.75 per cent starting in Feb 2025,” the brokerage said, adding that this view is irrespective of who is at the helm.

(With PTI inputs)