Background and Appointment
Poonam Gupta has been appointed as the new Deputy Governor of the Reserve Bank of India (RBI). She replaces Michael Patra, a noted hawk on the Monetary Policy Committee (MPC). Her first major assignment: the MPC meeting scheduled to begin Monday, April 7, 2025.
Strong Supporter of Flexible Inflation Targeting (FIT)
- Gupta supports India’s current inflation targeting (IT) framework. She believes the 4% inflation target with a ±2% tolerance band has served India well, but calls for a review.
- Key Proposal (Economic Times, Sep 2023):
- New target: Raise target to 4.5%, within a narrower band of 3.5–5.5%.
- Rationale:
- India has missed the 4% target in 6 of the past 8 years.
- Core inflation has consistently exceeded 4%.
- A moderate inflation rate of 4.8% is not necessarily harmful to economic growth.
Defense of Core Monetary Mandate (NCAER Paper, Aug 2024)
Co-authored with Barry Eichgreen, this paper supports keeping price stability as the RBI’s primary mandate.
Arguments Against Broadening Mandate:
- Expanding responsibilities may dilute focus on inflation.
- Complexity could undermine accountability and destabilize inflation expectations.
- Radical changes like targeting core inflation or adopting discretionary regimes would be risky.
Market Expectations
With Gupta stepping in for Patra, market observers are closely watching how her more nuanced and balanced stance will shape RBI’s future rate actions. Unlike Patra’s hawkish tone, Gupta’s writings hint at a data-driven, flexible approach.
