One of India's biggest GDP growth shortfalls in recent memory has increased pressure on central bank Governor Shaktikanta Das, who has yet to receive an extension despite the fact that his tenure expires next week.
Economists have speculated about Das's future after data showed the South Asian economy expanded 5.4 percent from July to September, a seven-quarter low and significantly lower than the Reserve Bank of India's 7% forecast. While Das was widely expected to extend his six-year term as governor, Prime Minister Narendra Modi's government has failed to clarify his position amid growing calls for interest rate cuts..
One of India's biggest GDP growth shortfalls in recent memory has increased pressure on central bank Governor Shaktikanta Das, who has yet to receive an extension despite the fact that his tenure expires next week.
"The next rate decision is live for a policy action and will be keenly watched for reasons behind the GDP miss," the official said. "If the central bank doesn't ease now, it could be forced to compensate with a larger-than-expected cut in February."
The slowdown in growth has fueled debate over whether the central bank is doing enough to maintain the world's fastest-growing major economy, while core inflation, which includes volatile food and energy costs, stays low. Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have both urged for reduced borrowing costs in recent months, and some economists believe the RBI should do more to stimulate lending and support GDP.
More broadly, India's weak economic development is dimming the appeal of the country to global investors drawn by the potential of an expansion that Das says is on track to reach 8% every year. Foreign inflows into equities have restarted in recent weeks, following a two-month slump, on expectations of policy rate reduction, while the rupee has fallen to fresh lows under global headwinds.
Das ruled off a rapid rate drop last month, despite the RBI's neutral policy stance, citing major inflation concerns from growing global commodity prices and ongoing geopolitical crises. He also stated that India's economy is "sailing through smoothly" when compared to the rest of the world.
However, following the latest quarterly GDP statistics, economists reduced their growth forecasts for the fiscal year ending March 2025. Goldman Sachs Group reduced its forecast to 6% from 6.4%, lower than the RBI's expectation of 7%.
Other economists believe that February may be too late.
Gaura Sen Gupta, an economist at IDFC First Bank Ltd., stated that she would not "recommend waiting for February to cut policy rates, given the transmission lags." According to Kaushik Das of Deutsche Bank, the RBI would first reduce the cash reserve requirement to increase liquidity, allowing rate cuts to be implemented "swiftly, once the repo rate is lowered."
Next Governor
It's also uncertain whether of the three senior RBI officials on the six-member monetary policy committee would be available in February, with Das' term slated to expire on December 10. In 2021, when he was last granted an extension, the administration disclosed it more than a month in advance.
The term of Deputy Governor Michael Patra, who has served on the rate-setting council from its creation in 2016, concludes next month. In October, the government named three new external members to the MPC.
"The MPC's relative inexperience, combined with uncertainty surrounding Governor Das' tenure, adds to monetary policy challenges at a time when both growth and inflation have deviated significantly from the central bank's expected trajectory," said Priyanka Kishore, an economist at Singapore-based consulting firm Asia Decoded Pte.
Das has mainly avoided discussing his future plans, stating a few months ago that he is focused on his work at the RBI.
"My table is already full, so I don't have time to really think about what comes next," he stated on October 18.
