Economists react to India's new central bank chief announcement

India appointed career civil servant Sanjay Malhotra as its new central bank governor on Monday in a surprise move that leaves markets guessing about the future direction of monetary policy, as growth slows and high inflation persists.

"One has to understand the turf, all perspectives and do what's the best for the economy," Malhotra, who has seldom shared his views on the economy in public, told reporters in New Delhi on Tuesday.

Malhotra formally takes over on Wednesday.

With a new governor at the helm of the Reserve Bank of India (RBI) and a deputy governor retiring next month, the RBI's monetary policy committee (MPC) will have a new look.

The rupee fell to a record low of 84.85 per US dollar, while the 10-year bond yield fell 2 basis points to 6.6954%, as the new chief's announcement prompted traders to ramp up bets on rate cuts by the RBI.

Some economists said Malhotra's entry could mean rate cuts could come sooner than previously expected.

The following are reactions from some economists:

Shilan Shah, Capital Economics

"The appointment of Mr Malhotra could set a new direction for the RBI. Admittedly, at this very early stage, not much is known about his monetary policy views. But in comments last week, he did voice considerably more concern over the health of the economy than Mr Das did during Friday's policy announcement.

"Under Das's leadership, we had forecast that cuts to the repo rate would only begin in April. But given (the) announcement, we are now forecasting the first 25bp cut at Malhotra's first meeting in charge in February."

Aastha Gudwani, Barclays

"The MPC will sport an almost-new look by the February MPC meeting - with five out of the six members being relatively new. This newness will likely bring uncertainty, but we believe that peak inflation is behind us and that monetary conditions should be eased to support growth."

Samiran Chakraborty, CITI

"Market focus would be on whether the MPC's assessment of the relative balance between growth and inflation will undergo any significant change under the new-look MPC at the Feb meeting.

"Markets would watch for the new governor's view on managing macro prudential policies and FX & Rates markets. At least in the near term, we expect broad continuity on these fronts."

Anubhuti Sahay, Standard Chartered

"Malhotra's appointment is likely to increase market expectations of rate cuts in 2025, in terms of both quantity and timing. At the 6 December MPC meeting, two of six members voted in favour of a cut."

Dhiraj Nim, ANZ Research

"Malhotra's appointment has reinforced the government's preference for former civil servants at the MoF (Ministry of Finance) to lead the central bank, to ensure cohesion and coordination between monetary and fiscal policies."

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