Will Shaktikanta Das continue to lead RBI beyond December?

On November 8, 2016, the Ministry of Finance called a hurried press conference immediately after Prime Minister Narendra Modi announced the decision to demonetise high-value currency notes under circulation in the country. The press conference was addressed jointly by the then Reserve Bank of India (RBI) Governor Urjit Patel, and the then Economic Affairs Secretary and current RBI Governor Shaktikanta Das. The conference went off peacefully. Perhaps it was too early for everyone to gauge the tumult waiting to unfold in the following days in the wake of the mega currency swap decision of the Government of India.

No sooner did the serpentine queues start building at the banks, and the public temper grew with the rising inconveniences, the opposition led by the Congress party then began firing salvos at the decision.

The press conferences at the North Block became combative by the day with the media hurling a barrage of tough questions to the powers that be on behalf of the common man. Shielding those tough questions, providing the necessary clarifications, and putting things in the right perspective, one man stood like an edifice negotiating the challenging task of the currency swap, the window for which was to close on December 30 that year. Shaktikanta Das never lost his nerve for a moment.

Eight years later, Das’s six-year tenure as the custodian of the monetary policy, is all set to end on December 10 this year. However, speculations are rife in the power corridors that the government may extend Das’s tenure as RBI Governor for another three years. Das has been at the helm of RBI since December 2018. In 2021, he was reappointed as the RBI governor for three years. Das, a 1980 batch IAS officer, has served as the revenue and Department of Economic Affairs secretary. Before becoming the RBI governor, Das also served as a member of the Fifteenth Finance Commission and G20 Sherpa.

Das’s impeccable tenure at the RBI has also been recognised globally. In October this year, Central Bank Report Card 2024 awarded Das, an A+ grade for the second consecutive year by Global Finance. Global Finance, since 1994, has been publishing the Central Bank Report Cards annually. It grades central bank governors from about 100 key countries. The evaluation for the grades is done based on parameters such as inflation control, economic growth, currency stability and interest rate management.

Das, a perfect career bureaucrat has his eyes on the upcoming monetary policy committee meeting scheduled next week, and as far as his tenure is concerned, he is of the view that it is the institution that is paramount, while individuals come and go. The call for a rate cut has grown, especially, in the wake of the poor GDP shown for the second quarter of the current financial year. A rate cut before February is highly unlikely given the high inflationary pressure in the economy.

“The CPI inflation is projected to ease to 4.7% in FY2025 from 5.4% in FY2024, albeit higher than the MPC’s forecast of 4.5% for the fiscal. Besides, we foresee that the Committee will raise its H2 inflation forecasts after the higher-than-expected print for October 2024. This leads us to believe that the MPC is unlikely to vote for a rate cut in the December 2024 policy. We foresee the shallow rate cut cycle of 50 bps to commence in the February 2025 policy or later,” said ICRA in the Economic Outlook and Macro Trend report released earlier this month.

That said, significant strides have been made on the monetary and liquidity management front in Das’s tenure, which saw key challenges like the COVID-19 pandemic and the 2019 economic slowdown.

During the economic slowdown in 2019-20, the RBI hand-held the micro small and medium enterprises through restructuring schemes for advances. As the COVID-19 pandemic hit and the lockdown was announced, the RBI proactively preponed its MPC meeting and announced a mega rate cut to ensure liquidity in the pandemic-hit economy.

“MPC voted unanimously for a sizeable reduction in the policy repo rate and for maintaining the accommodative stance of monetary policy as long as necessary to revive growth and mitigate the impact of COVID-19 while ensuring that inflation remains within the target. While there were some differences in the quantum of reduction, the MPC voted with a 4-2 majority to reduce the policy rate by 75 basis points to 4.4 per cent,” Das said in his statement on March 27, 2020. In the subsequent policies later that year, the benchmark lending rate was lowered to 4%.

For further liquidity management, without further reducing the benchmark lending rates, the RBI also performed an operation twist – a simultaneous sale and purchase of government securities under open market operations to keep the interest rates lower. Under the operation, short-term bonds are sold, and long-term bonds are purchased at the same time.

Shaktikanta Das’s eight-year tenure has remained impeccable on one more count. There have been no differences whatsoever between the mint street and the North Block in the last eight years. In the past, dirty linens have been washed in full public glare. The latest one was Urjit Patel - finance ministry spat on electoral bonds which led to his resignation.

Almost a decade ago, the differences on monetary policy between former finance minister P. Chidambaram and then-governor D. Subbarao were well known. Even now, with the recent clamour for a rate cut coming in from government quarters, Das’s reaction was very mature. He said he would like to reserve his comments until the next policy. It ended the matter there. Only time will tell whether the upcoming monetary policy will be his last or there will be more to come. Indications are that Das may continue to remain at the helm of RBI.