New India Central Banker Warned of Killing ‘Golden Goose’ #IndiaFinance

At the same time, the inflation rate remains well above the government-mandated target of 4%, with price gains accelerating to a 14-month high of 6.21% in October, lifted by volatile food prices.

While the combination leaves the new central banker with a difficult balancing act, several analysts said they expect Malhotra to take an accommodative approach to India’s monetary policy in the months ahead. Economists at Nomura Holdings Inc. said they expect a quarter-point cut to the central bank’s benchmark interest rate at the next meeting of the bank’s Monetary Policy Committee in February, projecting a total cut of one percentage point to 5.5% by the end of next year.

“A rate cut at the February MPC meeting is now likely cemented (and also warranted, in our view),” the economists, Sonal Varma and Aurodeep Nandi, wrote in a note to clients.

Dhiraj Nim, economist at Australia & New Zealand Banking Corp., also forecast a February rate cut of a quarter-point. Still, he said it was too soon to form a full picture of Malhotra’s views.

“We don’t know much about the new governor’s views on growth, inflation and the rupee,” Nim wrote. He added: “It may not be prudent to categorize him strictly as a dove or a hawk just yet.”

Another challenge facing Malhotra will be overseeing a six-person policy committee in the midst of major turnover. Three new members joined in October alone, and Deputy Governor Michael Patra is due to step down in January.

Like his predecessor, Malhotra is not a trained economist and doesn’t come with a history of vocal positions on fiscal or monetary policy. This may make him more closely aligned with the central government on policy matters while avoiding any outward public spats — at least at first, economists said.

While at the Finance Ministry, he worked to expand the adoption of India’s more simplified tax regime, intended to boost revenue by easing the compliance burden for ordinary Indians. He was a key driver of an online gaming tax of 28% and was instrumental in leading the global anti-money laundering watchdog FATF’s evaluation of India.

He was also credited with managing the backlash to changes by the government earlier this year to India’s long-term capital gains tax. Known for a long schedule sometimes running from 9:30 a.m. to 9 p.m., Malhotra could often be found working late into the night tweaking press releases and social-media posts, while also helping to ease concerns from stakeholders, officials said.

Another asset, they said, was his methodical approach to problems, coming to a decision after hearing out all views. That quality will likely prove useful at a central bank staffed with a large number of senior executives, they said.

“One has to understand the turf, all perspectives and do what’s the best for the economy,” Malhotra told reporters in New Delhi on Tuesday.

–With assistance from Anup Roy, Vrishti Beniwal and Shruti Srivastava.

(Updates with details about Malhotra’s tenure at the Finance Ministry. Corrects time reference in ninth paragraph.)

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