New RBI guv must keep macro picture in sight

The Reserve Bank of India (RBI) is one of India’s most illustrious institutions. It is entrusted with maintaining order and stability in the Indian economy, especially in managing the government’s debt, foreign exchange markets and the domestic financial sector. In 2016, the Centre added another mandate to RBI’s responsibilities, controlling inflation in the economy. Since then, it is this mandate — keeping the Consumer Price Index (CPI) at 4% — that has often been seen as the primary metric of RBI, and by extension, its leadership’s prowess or lack of it.

The change of guard in Mint Street, with Sanjay Malhotra replacing incumbent Shaktikanta Das, comes at a point where the central bank has been steadfastly holding interest rates till inflation aligns itself with the 4% target. That Malhotra is coming from the finance ministry — he was serving as the revenue secretary — has fuelled animated discussion on whether RBI will pivot towards growth from controlling inflation. The speculation is baseless for two reasons: One, it is the Centre that has given the inflation targeting mandate to RBI; and two, repo rates are decided by a collective body that has representation from both RBI and independent economists nominated by the Union finance ministry.

Das’s legacy as RBI governor will be his stable navigation of India’s macroeconomic ship during oneof the most turbulent periods in the history of modern capitalism. His successor must also focus on this larger challenge at a time when geoeconomics is entering a new phase of chaos with Donald Trump back as the US president. Cyclical discussions about growth and inflation could be more animated, but it is the structural focus which has given RBI its current prestige. This should not change.

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