RBI governor Shaktikanta Das was considered a fiscal conservative—as the economic affairs secretary in the finance ministry, when there was pressure from within and outside on the government to loosen the purse strings for the 2016-17 budget.  (Photo: Reuters)
RBI governor Shaktikanta Das was considered a fiscal conservative—as the economic affairs secretary in the finance ministry, when there was pressure from within and outside on the government to loosen the purse strings for the 2016-17 budget.  (Photo: Reuters)

Once a fiscal hawk, Shaktikanta Das turns a dove at RBI

  • On Thursday, Das was with the majority (4-2) in the monetary policy committee, voting for a 25bps rate cut
  • In his first speech at Vibrant Gujarat Summit, Das emphasized on the need to balance between growth and inflation objectives

NEW DELHI: When Reserve Bank of India (RBI) governor Urjit Patel resigned in a shock development on 10 December after a protracted rift with the government, the chatter quickly shifted to who will succeed him at Mint Street. Conscious that a delay in appointing the next governor could send the wrong signal to the market, the government turned to a dependable bureaucrat who had handled the crisis situation during demonetization in his earlier stint as economic affairs secretary in the finance ministry.

Shaktikanta Das, who became the face of demonetization after Prime Minister Narendra Modi’s 8 November, 2016, decision to withdraw high-value currencies worth 86% in value, was serving as a member in the 15th Finance Commission as well as representing India at G-20 meetings as its official negotiator. With Das’s appointment as the 25th governor, the top job at the central bank returned to a career bureaucrat after controversial tenures of two technocrats—Raghuram Rajan (September 2013-September 2016) and Urjit Patel (September-2016-December 2018). D. Subbarao, former finance secretary served as the governor before Rajan for five years.

Aware of the importance of communication in a crisis situation, having held almost daily televised briefings during the days of demonetization, Das held a press conference on his first day in office. This marked a break from the days of Patel whose engagement with the media and stakeholders was minimal, something that drew sharp criticism from bankers and industrialists in private. Das signalled restarting the consultative process with all stakeholders and held meetings in Mumbai and Delhi with bankers, industry bodies, non-banking financial companies and micro, small and medium enterprises to hear their views on the liquidity situation and the interest rate scenario.

Das also broke with convention by continuing to engage on Twitter, giving regular updates on his meetings and attracting more followers in the process. On last count, Das had 68,300 followers, 1,085 tweets and 49 likes.

In his first speech at the Vibrant Gujarat Summit on 18 January, Das emphasized the need to strike a balance between growth and inflation objectives. “While food inflation has turned negative since October 2018 and fuel inflation has been highly volatile, inflation excluding food and fuel remains sticky at close to 6%. Such wide divergences and large volatilities in inflation across major groups pose challenges for inflation assessment," he said.

On Thursday, Das was with the majority (4-2) in the monetary policy committee, voting for a 25 basis point rate cut while his key lieutenant, deputy governor Viral Acharya, voted against a rate cut. The cut surprised the market and analysts who were expecting only a change in stance by the MPC to neutral given the expansionary budget presented by the government on 1 February and elevated core inflation.

Das was considered a fiscal conservative—as the economic affairs secretary in the finance ministry, when there was pressure from within and outside on the government to loosen the purse strings for the 2016-17 budget. Das had prevailed upon then finance minister Arun Jaitley to stick to the fiscal consolidation roadmap.

For now the market will see Das as a dove since he has set aside concerns over high core inflation and gone with the benign headline inflation number. Whether he stays one or turns into a hawk or an owl (as Rajan once described central bankers) as he spends more time in his new nest in Mint Street remains to be seen.

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