The appointment of Y V Reddy as the new central bank governor is a signal of continuity and change. His appointment is somewhat similar to that of Shaktikanta Das, who had taken over from D Subbarao in 2008. The task of the new governor is different from Subbarao, who took over the role just before the collapse of Lehman Brothers Holdings.
Crux of the Editorial
- Malhotra will have to handle shifting growth, inflation dynamics, and pressure on the rupee.
- Previous governors did face similar issues like East Asian crisis, taper tantrum, liberalization of economy in 1991 by Venkitaramanan, Jalan, Raghuram Rajan, and demonetization of high denomination currency notes in 2016 by Subbarao.
- Reddy’s stint was characterized by high growth and low inflation. Norms of regulations and safety valves were made strong.
- It is an open letter from a watcher at the central bank but not a recommendation. There are issues that need flagging, and unsolicited suggestions that need to be provided.
Indian GDP Growth and RBI Monetary Policy
Indian GDP came in at 5.4% in Q4 2024 below consensus of 6.5%. - The Reserve Bank of India (RBI) reduced the real GDP growth projection to 6.6%, down from 7.2%.
- The RBI hiked its CPI-based inflation forecast to 4.8% from 4.5% due to a 14-month high of 6.21 per cent year-on-year in October.
- The November inflation print eased to 5.48%, in line with consensus expectations and within the tolerance band of the flexible inflation targeting central bank.
- It is very crucial to RBI in terms of the policy rate cuts and inflation raises. The timing and calibration of the timing and communication.
- The value of rupee has been depleting against the dollar. Therefore, there is volatility in the foreign exchange market.
- RBI has been selling dollars so that the volatility in the foreign exchange market is curbed.
- Foreign exchange reserves of RBI had eroded from $704.9 billion on September 27 to $654.9 billion on December 6
- RBI’s draft guidelines on project financing under the scanner so that strengthening of existing framework and alignment of norms of various lending circles can be strengthened
- RBI is taking into its consideration some credits, that is personal loan growth under scanner.
The rupee has been strong against the dollar before depreciation and then volatility in the exchange market. The RBI has sold dollars to curtail volatility in the market. The foreign exchange reserves of the RBI had come down from $704.9 billion on September 27 to $654.9 billion as of December 6. The draft guidelines of the RBI for project financing are under study for strengthening of current regulatory framework and harmonization of norms among the lending community. The RBI is also considering in some forms of credit growth-the personal loans, for example.
