It goes without saying the new Governor will have to manage inflation while pushing economic growth, even as the country copes with handling a fast-changing geo-economic scenario. India’s GDP growth slowed to 5.4 per cent in the second quarter of the financial year 2024-25.

India’s inflation, based on the consumer price index (CPI) for November, eased to 5.48 per cent, compared to 6.21 per cent in October. Importantly, prices of food items, too, rose at a slower pace of 9.04 per cent in November, against 10.87 per cent in October.

With inflationary pressures somewhat easing, many hope that the MPC, which will next meet in February, could go in for a policy rate cut, albeit by a small quantum.

"India's growth trajectory must continue, and RBI will play a key role in fostering it,” Malhotra had said while taking charge.

The MPC, in its meeting earlier this month, left the repo rate — the rate at which banks borrow from the RBI — unchanged at 6.5 per cent for the 11th consecutive time, despite clamour for a rate cut. However, the decision was taken by a split vote of 4:2, indicating once again that the “wise men” were divided on the issue.

Apart from a rate cut, some feel that a few of the stringent regulatory constraints to lending may be relaxed even before the policy meeting, something that could further ease liquidity and boost credit offtake.

“After inflation rose to over 6 per cent for October, it was almost certain that the RBI will not tinker with the policy rates until the next financial year. But now there may be some lowering of interest rate,” a senior bank executive told The Secretariat.

The RBI revised its inflation projections upwards by 30 basis points for the current financial year to 4.8 per cent, with the third quarter at 5.7 per cent, against the earlier estimate of 4.8 per cent, while the fourth quarter is estimated at 4.5 per cent. Earlier, it had pegged it at 4.2 per cent for the fourth quarter.

Viksit Bharat Vision

Clearly, Malhotra’s appointment as the RBI Governor indicates the government’s level of comfort in having a seasoned bureaucrat for the central bank’s top job, something that is expected to bring North Block and Mint Street on the same page regarding monetary policy.

“I will try to ensure policy continuity and stability, and gain the trust of the market," Malhotra said on his first day. He added that the thrust will be on ensuring the vision of “Viksit Bharat". He will be working with a new look MPC, which is expected to bring fresh thinking into India’s monetary policy.

RBI will have a new deputy governor and MPC member replacing Michael Debabrata Patra, whose tenure ends in January. Earlier in October, three new external members — Delhi School of Economics director Ram Singh, economist and former senior Vice-President of Axis Bank Saugata Bhattacharya, and Institute for Studies in Industrial Development director Nagesh Kumar, came on board, in place of Ashima Goyal, Jayanth R Varma and Shashanka Bhide.

A more accommodative monetary policy, however, does not mean a huge slash in interest rates. Rates will travel southwards, but slowly. And in case the incoming US President — widely seen as unpredictable — decides to start another war in the Middle East, or a proxy war against Iran, then rates may even start firming up in anticipation of an impending global meltdown.