RBI did not give the gift of cheap loans throughout the year, now all eyes are on 2025

Reserve Bank Of India: The year 2024 was a year of balancing challenges and priorities for the Reserve Bank of India (RBI). Skyrocketing inflation prevented the RBI from giving the gift of cheap loans. During this time, former governor Shaktikanta Das ignored the pressure to cut interest rates and kept the main focus on inflation. After the end of his tenure, the RBI under the leadership of new governor Sanjay Malhotra will have to decide whether inflation will continue to be prioritized at the cost of economic growth.

Das' tenure: Tough stance on inflation

Shaktikanta Das kept inflation control as his priority during his six-year tenure. He kept the key policy rate repo stable at 6.5% in the last two years. Das repeatedly said that tough decisions are necessary to control inflation. But the pressure on growth rate increased with GDP growth falling to 5.4% in the July-September quarter of 2024.

Under Das' leadership, the RBI emphasized on preserving the credibility of the 'flexible inflation framework'. However, the absence of any change in interest rates for 11 consecutive times had intensified the discussion in the market that policy changes are needed to revive economic activities.

Expectations and challenges from the new governor

After Das, Revenue Secretary Sanjay Malhotra took over the reins of the central bank. With his appointment, all eyes are on the monetary review meeting to be held in February. Analysts believe that Malhotra's approach may be more progressive. However, the indication of limited rate cuts by the US Federal Reserve in 2025 has further complicated the prospects of reducing interest rates for the RBI.

Malhotra will not only have to deal with domestic inflation, but also maintain the stability of the rupee in the foreign exchange market. It will be interesting to see whether he moves towards cutting interest rates in February or focuses on inflation like Das.

Interest rate cut: solution or confusion?

There is growing difference of opinion among the six-member Monetary Policy Committee (MPC) of the RBI regarding the reduction in interest rates. While some experts are predicting a 0.50% cut, others do not consider it sufficient. In the current economic conditions, it is doubtful that such a modest cut will help to stimulate economic activity.

Das had said in his last press conference that 'there is no place for sudden reaction in central banking.' The new governor Malhotra will also have to take decisions keeping in mind the long-term effects.

Economic growth and inflation: a question of balance

RBI's primary responsibility is to keep inflation under control, but the decline in GDP raises the question whether growth can be ignored at the cost of inflation control. Experts believe that there will be pressure to change the policy stance from 'neutral' to 'friendly' in the February meeting.

Conclusion

The challenges and changes of 2024 have left a deep mark on RBI's policy priorities. Under the leadership of new governor Sanjay Malhotra, RBI will have to take difficult decisions to strike a balance between inflation and economic growth. It will be important to see whether he wins the trust of the public and the market by giving the gift of cheap loans, or maintains a tough stance on inflation. The coming months will prove to be decisive for the RBI and the country's economic policies.