skyrocketing inflation This entire year, RBI was prevented from giving the gift of cheap loans. Due to this, former RBI Governor Shaktikanta Das ignored the pressure to cut interest rates in 2024 and kept his main focus on inflation. However, now under the leadership of the new chief, the central bank will soon have to decide whether it can continue to give priority to inflation at the expense of economic growth. The government has appointed Revenue Secretary Sanjay Malhotra as the new governor after Das completes his second term at the end of 2024. Now all eyes are on the current Governor of RBI to give the gift of cheap loans and help in reducing the EMI burden.
Pressure to cut repo rate due to fall in GDP
Under Das’ leadership, RBI kept the key policy rate repo unchanged for almost 2 years. However, the economic growth rate in the July-September quarter of the current financial year has fallen to the lowest level in seven quarters. With the new Governor taking charge and growing disagreement in the Interest Rate Setting Committee (MPC) in favor of cutting interest rates, all eyes are now on the monetary review meeting of the RBI in February. Everyone is waiting to know what is the stand of MPC in the February meeting. After his appointment in the same month, some analysts believed that Malhotra’s arrival strengthened the chances of an interest rate cut in February, but some events, notably the US Federal Reserve, indicate less interest rate cuts in 2025. Given its impact on the rupee, some people have started to question whether this is the right time to cut interest rates.
Advocating 0.50 percent cut in repo rate
Some observers are also questioning whether a mild interest rate cut of 0.50 per cent – as is widely expected given inflation expectations – will be in any way useful for economic activity. Das, who joined the central bank after a long career as a bureaucrat, had said he worked as per the provisions that focus on inflation while remaining mindful of growth. The six-member Monetary Policy Committee had unanimously decided to change the policy stance to ‘neutral’ in October 2024. In his last policy announcement, Das had cited economic growth rate of 5.4 per cent in the July-September quarter and inflation going above the satisfactory level of six per cent in October, saying that the growth-inflation dynamics have become unstable.
There has been no change since 11 times
Das, in his last press conference after the publication of official GDP growth data, said there was no scope for ‘casual’ reaction in central banking. He said the ‘credibility’ of the flexible inflation framework will have to be preserved going forward. RBI has kept key rates unchanged for the bi-monthly policy review for 11 consecutive times. Bureaucrat Das had overseen the entire matter after the demonetization decision by Prime Minister Narendra Modi in 2016. He has left a lasting legacy. He conducted monetary policy efficiently for six years.
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