India's new central bank governor takes over as economic growth slows and inflation rises

NEW DELHI -- India got a new central bank governor on Wednesday, career civil servant Sanjay Malhotra, who has taken office at a time when the country’s economic growth is slowing and inflation is surging.

Malhotra, a former revenue secretary, was appointed to a three-year term as head of the Reserve Bank of India, succeeding Shaktikanta Das, who retired as central bank governor after an extended six-year term.

India’s economy grew at a 5.4% annual pace in the last quarter, the weakest pace in nearly two years, while inflation rose to 6.2% in October, well above the RBI’s target of 4%, due to rapid increases in vegetable prices.

“Malhotra takes over at a time when there is a growing clamor for the RBI to ease policy rates in order to support growth. His challenge will be to steer the central bank through a period of global and domestic uncertainty,” the Indian Express newspaper said in an editorial.

Last Friday, the central bank under Das left interest rates at 6.5%, unchanged since February last year, as rising food prices pushed inflation higher. However, it reduced the cash reserve ratio, which banks must hold to ease monetary conditions and support growth, to 4% from 4.5%.

Economists expect inflationary pressures to subside in coming months, clearing the way for a rate cut in the spring.

“A slowdown in urban consumer spending is reigniting worries over structural weaknesses in India’s economy, as high inflation along with weak jobs and low wage growth hurt demand growth,” Shumita Deveshwar of TS Lombard said in a recent report.

The Reserve Bank has revised its forecast for economic growth in the April-March fiscal year to 6.6% from an earlier estimate of 7.2%. The central bank said the decline was mainly the result of a slowdown in mining and in some manufacturing industries, such as petroleum products, iron and steel and cement.

It said it expected a recovery in industrial activity helped by higher government spending following the lulls of the monsoon season.

"Supply chain pressures eased in October-November and fell below the historical average. The services sector continues to grow at a strong pace,” it said.