MC Analysis | Governor Malhotra brings new thinking at RBI, but too soon to predict what next

In more ways than one, Malhotra’s style is quite a departure from Das – no cricket analogies, no quoting Mahatma Gandhi, and getting straight into Q&A at the presser - which is quite a notable change, aside of the rate cut.

The other massive change is the reassurance to banks that the regulator will not rush to implementation of any of the proposed changes to the liquidity management or project financing in a haste. Ruling out the possibility of banks adopting the proposed liquidity coverage ratio or project finance framework next fiscal, Malhotra has comfortably given banks another 13 months to adopt these norms.

By doling out these steps, Malhotra has won the comfort of the financial market and the banking system. The more important takeaway is Malhotra using the word ‘growth’ more in his speech and not ‘inflation’. This too is a departure from the approach of Shaktikanta Das, who seemed more concerned about inflation, particularly from mid-2024.

Sticking with the Old

But that should, by no means suggest that Malhotra is pro-business or pro-government. There are many instances, where he kept his cards close to chest, just as any central banker. For instance, despite repeated prodding on whether more rate cuts are in the anvil, he emphasized that the RBI’s MPC remains committed to the ‘neutral’ stance it took about two policies ago, and a rate cut in February should not be mistaken for an accommodative policy thinking for subsequent MPC meets.

A response of this nature is neither a yes nor a no to further rate cuts. Then, what about handling liquidity deficit in the banking system? On this too, his response was in-line with past decisions – liquidity will be injected on a need basis.

A combination of both these responses may have spooked banking shares, and instead of rejoicing the rate cut, the Nifty Bank index was deep in the red on MPC Day.

The third aspect where Malhotra stuck to the usual narrative was on Indian Rupee. Did the regulator intervene to defend a weakening currency, are there measures to shield the Rupee, and what is the RBI's outlook on the currency – these are some of the questions that could possibly lead one to some insight on the currency market movements. But like his predecessors, Malhotra was tight-lipped on this critical aspect.

To sum it up, given that a rate cut was almost a foregone conclusion, market participants were eagerly looking forward to a new thinking on liquidity management strategy, and direction of the Indian Rupee. Neither of the two came through, and market participants will keenly follow the April MPC to get some cues on these aspects.

While Malhotra promises some newness in the thought process, particularly with respect to providing some handholding and cushioning to the banking system on the regulatory front, beyond that, its new wine in old bottles.

That shouldn’t be surprising though. As the Mint Street adage goes, it doesn’t matter where the Governor comes from, but once he occupies the 18th floor of the Central Office Building, he becomes one of them – a central banker.

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