Will do what is best for economy, says incoming RBI guv Sanjay Malhotra

Malhotra, 56, will take over as governor today at a time when there is growing clamour for an interest rate cut to support slowing economic growth

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A day after his appointment as the 26th governor of the Reserve Bank of India (RBI), outgoing Revenue Secretary Sanjay Malhotra on Tuesday said one must understand the economic landscape and do what was best for the economy.

 

“Let me first go, join, understand the turf … Here it is a different role,” Malhotra said, speaking to reporters in front of North Block.

 

Malhotra, 56, is taking over as governor at a time there is growing clamour for a cut in the repo rate to support growth, which slowed to a seven-quarter low of 5.4 per cent in July-September FY25.

 

Last week, the Monetary Policy Committee of the RBI kept its benchmark repo rate at 6.5 per cent to control inflation but reduced the cash reserve ratio (CRR) by 50 basis points to inject liquidity into the system.

 

Tanvee Gupta Jain, chief India economist at UBS Securities, said the new governor would need to balance growth risks and recent headline consumer price inflation (6.2 per cent in October), which remains well above the RBI’s medium-term target of 4 per cent.

 

“With the new governor coming from the Ministry of Finance, market participants may assume this could lead to a stronger role for the government in monetary-policy decisions,” she added.

 

Madhavi Arora, lead economist at Emkay Global Financial Services, said Malhotra as revenue secretary had made tough tax decisions relating to capital markets, including changes/harmonisation in capital gains tax treatment across asset classes, with the removal of indexation for real estate and debt mutual fund gains. “However, he recently acknowledged the negative impact of excessive tax compliance and notices on business activity,” she said.

 

Jain said recent surges in food prices were expected to ease in the coming months, and the retail inflation rate was anticipated to get further relief from lower energy prices and input costs.

 

“Regardless of the RBI governor, we maintain our view that a high real policy rate and softening growth could create room for the central bank to lower the repo rate by 75 basis points starting in February 2025,” Jain added.

 

An Indian Administrative Service officer of the Rajasthan cadre (1990 batch), Malhotra became revenue secretary on December 1, 2022, after an eight-month stint as secretary in the Department of Financial Services. That brief tenure in handling the banking and non-banking sectors will now come in handy for him as regulator.