What will be the new Governors’ first rate call?
Reserve Bank of India (RBI) governors have, in the past, acted according to the prevailing economic conditions and the monetary policy objectives in their first policy review.
Y V Reddy and Duvvuri Subbarao had kept policy rates unchanged in their first policy review, while Urjit Patel and Shaktikanta Das had reduced rates in their first policy actions.
Both Patel and Das, to be sure, had assumed office only after the RBI adopted flexible inflation targeting with a midpoint goal as its formal monetary policy objective. Raghuram Rajan, who preceded Patel, had raised rates in his first policy action after taking over as he had to deal with a weak external sector and drying capital inflows, among others.
The market is divided on whether Sanjay Malhotra will cut rates in February. Das had lowered rates following growth moderation over three quarters during the watch of his predecessor.
Malhotra, too, inherits an economy where growth has moderated in pockets of the economy, particularly mass consumption, although inflation is expected to trend lower on expectations of an end to the surge in food prices. In the accompanying table, ET encapsulates the state of the economy and inflation levels the past five governors inherited and what their first policy actions were.
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