The Princeton-educated 56-year-old Malhotra will helm the Reserve Bank of India as slowing economic growth and persistent inflation create a rift between the views of Prime Minister Narendra Modi’s government and the central bank on the need for lower interest rates.
Bond yields fell and the rupee weakened following Malhotra’s appointment as traders ramped up bets for an interest rate cut when the central bank reviews policy in February.
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The six-member rate-setting panel left interest rates unchanged last week but cut banks’ cash reserve ratio to support liquidity and growth.
“Under Das’ leadership, we had forecast that cuts to the repo rate would only begin in April,” said Shilan Shah of Capital Economics. “But given the announcement, we are now forecasting the first 25 basis point cut at Malhotra’s first meeting in charge in February.”
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Malhotra, who is currently India’s revenue secretary and will serve as RBI governor for three years, has not made any public comments on inflation and growth.
On Tuesday, he told reporters “One has to understand the turf, all perspectives and do what’s the best for the economy.”
He assumes his new role on Wednesday.
Faith in bureaucrats
Malhotra, like Das, is a career bureaucrat, having joined the storied Indian Administrative Service in 1990.
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His appointment is seen reinforcing the government’s inclination to appoint public servants to head the central bank for better coordination between fiscal and monetary policies.
Dhiraj Nim, an economist at ANZ Research, said the appointment would “ensure cohesion and coordination between monetary and fiscal policies.”
The government’s renewed preference for bureaucrats in the RBI’s top job follows a period between 2013 and 2018 of opting for external economists.
Raghuram Rajan, former chief economist of the IMF, was central bank governor from 2013-2016, leaving after a single term. Urjit Patel, who had worked in the private sector previously and became RBI chief in 2016, resigned abruptly amid a face-off with the government.
Das, who became governor in 2018, said on Tuesday that the coordination and relationship between RBI and finance ministry had been at its best over the past six years.
A mathematical mind
An engineering graduate, Malhotra was known within the federal finance ministry for his focus on data and trying to build predictive models for government tax revenue.
A person who worked with Malhotra said he was a “hard taskmaster” and held daily review meetings with the “memory of an elephant”. He reads between the lines and focuses on micro details, said the source, who declined to be named.
However, he is known for not overstepping his role or interfering in matters that did not directly involve him, another person said, who also declined to be named.
He shared a cordial relationship with Finance Minister Nirmala Sitharaman, and took decisions on long pending taxation issues, the source added.
These included a contentious call to tax online gaming companies.
Malhotra also led global anti-money laundering watchdog FATF’s evaluation of India, which helped the country get good ratings, said the first source.
In contrast to the RBI’s stand to virtually ban cryptocurrencies, the finance ministry under Malhotra tried to make cryptocurrencies mainstream by requiring virtual digital asset service providers to register with the Financial Intelligence Unit, said the first government source.
He previously helmed the department that listed state-run behemoth Life Insurance Corp.