RBI Governor Sanjay Malhotra: Analysts Predict Rate Cut in February 2025

RBI Governor Sanjay Malhotra: Economic analysts have indicated that fixing Sanjay Malhotra as the new RBI Governor has "cemented" the possibility of a rate cut during the next policy review that will be scheduled in February.

"We opine that the outgoing RBI Governor Shaktikanta Das was sticking to his guns on rates as evidenced during his December 6, 2012 sitting where the rate-setting panel that has him at the helm maintained a status quo on rates," they added.

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Government of India has appointed Revenue Secretary Sanjay Malhotra as the 26the Governor of the RBI with effect from Wednesday. The Appointments Committee of the Cabinet approved his name to that prestigious post, as Malhotra would be in the office for three years from now onwards.

Monetary Policy Under Sanjay Malhotra to Be "More Accommodative"

Monetary policy under Malhotra, who is also a career bureaucrat, will be "more accommodative," analysts at Japanese brokerage Nomura said, adding that the rate cut at the February meeting is "cemented."

Expectations of the RBI Rate Cut in February 2025

Growth-Promoting Rate Cuts Anticipated

The brokerage added that the growth-pushing rate cut is also merited at the next meeting.

Government-RBI Divide Over Monetary Policy

In fact, according to the brokerage, over the last few weeks a "stark divide" seemed to be emerging between the government and RBI on the need for countercyclical monetary policy, with both finance minister Nirmala Sitharaman and commerce minister Piyush Goyal having decried the RBI's policy for being too tight.

Domestic Brokerages Weigh In

Domestic brokerage Emkay, however, said it "does not rule out" the rate cut in February but will be much more comfortable making a firm call closer to the policy window.

The Appointment of Sanjay Malhotra Reflects the Government's Taste

The decision of appointing Malhotra was down to the wire and reflects government's comfort with having a bureaucrat rather than a technocrat on top in the Reserve Bank of India.

Limited Insights into Sanjay Malhotra's Economic Outlook

Almost all analysts said, according to Emkay who stated those talking to bankers, little is known about Malhotra's economic views, and he is candid in policy communication, while during his past role at the Department of Financial Services, he would push banks towards and focus on the use of technology.

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Market Concerns About Government Influence

“With the new Governor coming from the Ministry of Finance, market participants could be inclined to think that might lead to a stronger role for the government in monetary policy decisions," analysts at Swiss brokerage UBS said.

Balancing Growth and Inflation Risks

They said Malhotra has to strike a balance between the risk of growth and the rise in headline inflation seen recently, stating also that Das maintained RBI's autonomy, established the relationship with government, ensured financial stability especially during pandemic shock, and focused on financial inclusion and digital innovation.

Upcoming Appointments and the Impending Wave of the Market

The appointment of Malhotra is nothing but a surprise for the financial markets, and this will be followed by appointment of a new RBI Deputy Governor incharge of monetary policy replacing Michael Patra in January next year.

MPC Composition and Rising Global Uncertainties

Of the six members of the Monetary Policy Committee expected to work with the government, five had joined the committee only recently works with the addition of three new external MPC members into the committee in October 2024. This could witness the advent of further currency and market volatility as rising global uncertainties take their toll in relations to Trump Administration's tariff proposals.

Outlook for Policy Rate Cuts

“..We maintain our view that a high real policy rate and softening growth could create room for the RBI to lower the repo rate by 0.75 per cent starting in Feb 2025," the brokerage said, adding that this view is irrespective of who is at the helm.

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