The whispers are getting louder: could incoming RBI Governor Sanjay Malhotra’s kick things off with a rate cut?
Malhotra’s got all the reasons to take the plunge. India’s economy is dragging, and the stock market is in a slump. And if that’s not enough of a nudge, China just flipped to a “moderately loose” monetary policy.
Why it matters?
Any rate cut will help buoy “animal spirits”, says Udith Sikand, senior emerging markets analyst at Gavekal Research.
Let us simplify that down for you. A rate cut means cheaper loans for consumers and businesses, driving up spending for big-ticket items like cars and homes and investments into new projects of capacity expansion, respectively.
It’s the kind of boost the economy could use, especially with GDP down to 5.4% and inflation shooting past the central bank’s comfortable range (4% with a +/- 2% tolerance band) to 6.21% in October.
The RBI could’ve cut rates last week, but it chose to tackle inflation instead. Maybe Das left it for Malhotra to tackle?
Well, if you want to take any hints, Malhotra dropped some cryptic ones in his first meet and greet with the press today (11 December): “While stability is important, we’re in a constantly changing environment – the world is dynamic, there’s climate change and political uncertainty. We have to be conscious of change. We can’t be stuck to it.”
Read more: RBI takes detour to fix economy
Is there a play?
History’s pretty clear on that: In India, every rate cut cycle since 2013 has boosted the markets. The next cycle could be here soon.
Nomura, Bank of America and ANZ are all betting on 75 basis points cuts at the minimum starting in February 2025.
If Malhotra pulls the trigger, watch for a credit boom. Banks such as SBI, Axis Bank, Bank of Baroda, PNB could rally, while those tied into spending on homes, cars and white goods — think DLF, Macrotech Developers, Mahindra & Mahindra, Maruti Suzuki Whirlpool, and IFB — stand to benefit the most.
Read more: India’s market gloom deepens as IPO boom cools down
There is a track record
Of the last four RBI governors, two cut rates in their first meeting, and another in their second meeting. Malhotra, a career civil servant like Das, might follow suit.
Das, to his credit, kept inflation manageable and guided the Indian economy through a pandemic, and even handed a record $24.8 billion dividend payout to the Indian government in 2023-2024. Plus, he never had “issues” with the state.
And more importantly, he is one of two governors who cut rates in the first meeting after taking over. Maybe all Malhotra needs to do is follow the Das playbook.
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