Uncertainty about the future of India’s central bank governor, whose contract ends in less than a month, is adding another layer of complexity to interest rate expectations.
Shaktikanta Das, who has been at the helm of the Reserve Bank of India for six years, will come to the end of his contract on Dec. 10. With just over three weeks to go, there’s been no indication from the government or the RBI if Das, 67, will be given an extension or be replaced. The Appointments Committee of the Cabinet, which is comprised of Prime Minister Narendra Modi and Home Affairs Minister Amit Shah, has the final say on the position.
Economists are already calibrating their rate-cut expectations following the election of Donald Trump as US president — who threatens to upend global trade with widespread tariffs — and data this week showing a spike in India’s inflation to above the 6% upper-end of the RBI’s target band. Most analysts have already ruled out a December rate cut, with some, including State Bank of India economist Soumya Kanti Ghosh, seeing a move only in April next year.
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Das’s position at the RBI “will definitely have an impact because ultimately the rate decision is based on the voting of the monetary policy committee members,” said Teresa John, an economist at Nirmal Bang Institutional Equities. There’s “not much difference” if Das remains in his post, but “if there’s a new person we don’t really know the view of the new person.”
Speculation among economists and some bureaucrats in New Delhi is that Das is favored to get an extension on his contract given his steering of the economy through shocks such as the pandemic. No other notable candidate names for the governor’s position have been doing the rounds in the media or among analysts.
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Modi has also shown a preference for continuity in his third term, having retained key ministers in his cabinet and advisers as he looks to deliver on an ambitious goal to make India a developed nation by 2047.
Spokespeople for the Prime Minister’s Office, Ministry of Finance and the RBI didn’t respond to requests for information. Das himself has sidestepped any questions about his future when asked about it publicly.
The government will also need to fill the position of Das’s deputy in charge of monetary policy, Michael Patra, whose term ends in January. His job was already advertised earlier this month. In October, the government also appointed three new members to the MPC, which decides interest rates.
“The MPC decision is a cumulative decision” when it comes to interest rates, said Sakshi Gupta, economist at HDFC Bank Ltd. “But the shape and form of MPC will perhaps have a bearing on RBI’s views on what is happening to growth and whether they can look through some of the food inflationary pressures that we are seeing.”
Das has been relatively hawkish on inflation, refraining from cutting interest rates despite the Federal Reserve’s recent pivot and growing calls for easing. The RBI has kept interest rates unchanged for almost two years, although it changed its policy stance to neutral at the last meeting, raising expectations it would cut rates soon.
First appointed in 2018, Das’s contract was extended three years later, with that announcement made well over a month before his term ended. If he’s given another extension beyond 18 months, it will make him the longest-serving governor of the central bank since Benegal Rama Rau, who served for more that 7 years between July 1949 to January 1957.
“Das has done an incredible job,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd. “There is a high probability that his term will get extended.”
A long-time bureaucrat, Das took the helm at the central bank after his predecessor Urjit Patel resigned unexpectedly. He’s avoided public disagreements with the government — unlike Patel and former governor Raghuram Rajan — allowing for better coordination of monetary and fiscal policy.
During his six-year term, he’s focused on stabilizing the rupee by building up foreign exchange reserves to about $700 billion, the fourth-largest stockpile in the world.
