All eyes are on the new RBI governor, can the repo rate be reduced in 2025

Sanjay Malhotra: The year 2024 witnessed historic changes in the Reserve Bank of India (RBI). Under the leadership of Governor Shaktikanta Das, the RBI kept the main focus on inflation, ignoring the growing pressure to cut interest rates. Now, the big question before the new governor Sanjay Malhotra is whether he will prioritize economic growth or continue Das' policy of maintaining strict control on inflation.

Das' tenure: Leadership facing challenges

Shaktikanta Das took charge of the RBI after demonetization in 2016. Under his leadership, the central bank not only maintained financial stability, but also played an important role in bringing the Indian economy back on track during the Kovid-19 pandemic. During Das's six-year tenure, the RBI conducted monetary policies efficiently and kept the key policy rate repo unchanged till the end of 2024.

His decision-making ability during the pandemic saved the economy from a major recession. However, many economic challenges emerged in the last days of his tenure due to slow economic growth and high inflation.

Appointment of Sanjay Malhotra: A step towards a new direction

When Das' term ends at the end of 2024, the government appointed Revenue Secretary Sanjay Malhotra as the new RBI Governor. Malhotra's taking over comes at a time when there is growing disagreement in the Monetary Policy Committee (MPC) on interest rate cuts.

Eyes on February's monetary policy review

With Malhotra's appointment, all eyes are on the monetary policy review meeting of February 2025. Analysts believe that new policies can boost the possibility of interest rate cuts. However, this possibility is also being questioned due to the stance of the US Federal Reserve and global economic conditions.

The Monetary Policy Committee had decided to change the policy stance to "neutral" in October 2024. Despite this, Das had cautioned that the balance between growth and inflation remains unstable. He stressed the need to maintain the credibility of inflation targeting.

Possible cut in repo rate: Will it be effective?

Some analysts say that a possible repo rate cut of 0.50 per cent will have a marginal impact on economic activity. Given the complex equation between inflation and growth, it is not clear in which direction this cut will take the economy.

The way forward

Sanjay Malhotra faces the challenge of changing policies to boost economic growth while also maintaining RBI's commitment to inflation control. The February monetary policy review under his leadership will play a key role in deciding the future direction of the Indian economy.

Malhotra's decisions will also determine whether the RBI will carry forward the legacy of Shaktikanta Das's steady and careful leadership or look for new paths to economic growth.