MALHOTRA AT HELM: DID HE GIVE IT ALL?

Sanjay Malhotra's first year as RBI governor was marked by a favourable inflation-growth cycle, which he used to front load rate cuts and ease liquidity amid global uncertainties, while allowing the rupee to depreciate.

- BY NANDITA VENKATESAN & PRAGYA SRIVASTAVA

When Sanjay Malhotra became the 26th governor of the Reserve Bank of India (RBI) a year ago, he didn't inherit a crisis-in fact, the period of high inflation was drawing to a close. He did, however, assume office at a time when the entire world was gripped by uncertainty.

Malhotra responded with what can be described as two insurance rate cuts-50 basis points in June and 25bps in December-to stay ahead of the curve and to optimize the "rare goldilocks" period of low inflation and high growth. A basis point is one-hundredth of a percentage point.

He ended his first year in office with a cumulative rate cut of 125bps, almost as aggressively as his predecessor, Shaktikanta Das, who slashed rates by 135bps in his maiden year (December 2018-December 2019).

Both Das and Malhotra were career bureaucrats who had previously worked in the finance ministry before taking the reins of the central bank. Despite these similarities, Das and Malhotra delivered these cuts against different economic backdrops. Das cut as the output gap deemed negative at the time, while inflation was range-bound. Malhotra cut as a precipitous decline in inflation opened a window for lower rates.

On the rupee front, Malhotra has diverged from his predecessor, adopting a largely hands-off approach and allowing the currency to weaken.

Experts believe Malhotra is continuing Das's style of clear communication, but he also has a "give it all" policy. "He believes that when he has clarity, he should just go ahead and give it all, so that the transmission is quicker, instead of doing the step function (like Das)," said Madhavi Arora, chief economist at Emkay Global.