The Indian rupee fell to a historic low of 84.85 against the U.S. dollar on Tuesday, surpassing its previous all-time low of 84.7575 recorded last week. The decline came amid market reactions to the appointment of Sanjay Malhotra as the next governor of the Reserve Bank of India (RBI).
Bond markets also saw movement, with the 10-year government bond yield dropping by 2 basis points to 6.6954%. Traders speculated that the RBI intervened to support the rupee during the session.
Malhotra, currently serving as the revenue secretary to the finance ministry, will take over as RBI governor on December 11 for a three-year term. He succeeds Shaktikanta Das, whose six-year tenure ends on Tuesday. Das, along with RBI Deputy Governor Michael Patra, has been considered one of the more hawkish members of the central bank’s monetary policy committee (MPC). Patra’s term is set to end in mid-January, with the government yet to announce a replacement.
Malhotra’s appointment is seen as signaling a potential shift toward a more growth-oriented monetary policy, which could lead to rate cuts in the near term. Anshul Chandak, head of treasury at RBL Bank, remarked, “With Malhotra’s appointment, there is an expectation of a tilt towards supporting growth. A February rate cut by the RBI seems more certain now compared to last week following Das’ statements on inflation.”
The RBI recently maintained its key interest rate but lowered the cash reserve ratio for banks, effectively easing monetary conditions.
Malhotra’s tenure begins at a critical juncture, with India grappling with slowing economic growth and persistently high inflation. Economists warn that a growth-focused monetary policy could have implications for the rupee, particularly by reducing interest rate differentials and weakening carry trade inflows.
A trader at a foreign bank projected further depreciation of the rupee, estimating it could fall to 86 per dollar by March 2025.
The central bank’s policy direction under Malhotra will be closely watched, especially as three new external members joined the MPC in October, potentially influencing its stance.
As markets adjust to the new leadership and policy outlook, the Indian economy faces the delicate task of balancing growth and inflation amid global economic uncertainties.