India rupee hits record low, bond yields dip as change of guard at RBI spurs rate cut bets
The RBI likely stepped in to support the rupee, traders say
THE Indian rupee slipped to a record low and government bond yields fell on Tuesday (Dec 10), as the appointment of career bureaucrat Sanjay Malhotra as the next governor of the Reserve Bank of India (RBI) prompted traders to ramp up bets on rate cuts.
The rupee fell to 84.85 per US dollar, surpassing its previous all-time low of 84.7575 hit last week, while the 10-year bond yield fell 2 basis points to 6.6954 per cent.
The RBI likely stepped in to support the rupee, traders said.
Malhotra, currently the revenue secretary to the finance ministry, has been appointed as the RBI governor for a three-year term starting Dec 11 after outgoing governor Shaktikanta Das’ six-year term ends on Tuesday.
Das’ exit, economists said, could add a dovish tilt to India’s monetary policy committee as Das and RBI Deputy Governor Michael Patra were seen as the most hawkish members of the six-member rate-setting panel.
Patra’s term concludes in mid-January and the government is looking for a replacement.
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Sanjay Malhotra’s appointment comes at a time when the Indian economy’s growth has slowed while inflation remains elevated, complicating the outlook for monetary policy.
“With Malhotra’s appointment, there is an expectation that there will be a tilt towards supporting growth, and bond yields are reacting to that,” said Anshul Chandak, head of treasury at RBL Bank.
“A February rate cut by the RBI seems more certain now compared with... last week following Das’ statements on inflation,” Chandak added.
On Dec 6, the RBI kept its key interest rate unchanged but cut the cash reserve ratio that banks are required to hold, effectively easing monetary conditions.
Three new external members on India’s rate-setting panel were replaced in October after the terms of the previous members ended.
“If the RBI adopts a growth-focused monetary policy, as suggested by recent dovish expectations, narrowing interest rate differentials could weaken carry trade inflows and hurt the rupee,” a trader at a foreign bank said.
The trader expects the rupee to decline to 86 by the end of March 2025. REUTERS
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