Sanjay Malhotra, a career civil servant, took over as India's new central bank governor on Wednesday as the economic growth in the South Asian country, one of the rare strong performers in recent years, tapers off and inflation is rising.
The Reserve Bank of India (RBI) said Malhotra, a former revenue secretary, will formulate India’s monetary policy for the next three years.
He succeeds Shaktikanta Das, who retired as RBI governor after an extended six-year term.
The gross domestic product (GDP) growth slowed to 5.4% in the quarter ending in September, the weakest level in seven quarters. In October, inflation rose above the central bank’s 6% tolerance band to 6.21%, driven by a rapid rise in vegetable prices.
"Malhotra takes over when there is a growing clamor for the RBI to ease policy rates to support growth. His challenge will be to steer the central bank through a period of global and domestic uncertainty," the Indian Express newspaper said in an editorial.
Last Friday, the central bank under Das left interest rates at 6.5%, unchanged since February last year, as rising food prices threatened to boost retail inflation. However, it reduced the cash reserve ratio, which banks must hold to ease monetary conditions and support growth, to 4% from 4.5%.
The newly appointed governor Malhotra said on Wednesday he would look to ensure stability and continuity in policymaking for the benefit of the economy, a Reuters report indicated.
"All businesses, all people, they do need this (policy) stability rather than (a) day-to-day kind of a policy," Malhotra said at a news conference in Mumbai after he took charge for a three-year term.
"We continue to uphold this value, this principle of stability."
Malhotra's appointment came as a surprise and has left markets guessing about the future direction of monetary policy.
Malhotra, 56, had earlier worked in India's Ministry of Power and headed a public sector company that provided finance for rural electrification projects.
In his previous role as India's revenue secretary, he was vocal about tax overreach. Speaking at a federal event in New Delhi last week, he said that state officials had to work to improve the entire economy and not simply get more revenue via taxation.
"Revenue comes in only when there is some income. Therefore, we have to be very cautious so that we do not, as they say, kill the golden goose," he said.
Economists expect inflationary pressures to subside in the coming months, clearing the way for a rate cut in the spring.
"A slowdown in urban consumer spending is reigniting worries over structural weaknesses in India's economy, as high inflation along with weak jobs and low wage growth hurt demand growth," Shumita Deveshwar of TS Lombard said in a recent report.
The Reserve Bank has revised its forecast for economic growth in the April-March fiscal year to 6.6% from an earlier estimate of 7.2%. The central bank said the decline was mainly the result of a slowdown in mining and in some manufacturing industries, such as petroleum products, iron and steel, and cement.
It said it expected a recovery in industrial activity helped by higher government spending following the lulls of the monsoon season.
"Supply chain pressures eased in October-November and fell below the historical average. The services sector continues to grow at a strong pace," it said.