India rupee hits record low, bond yields dip as a change of guard at RBI spurs rate cut bets

The Indian rupee slipped to a historic low of 84.85 per U.S. dollar on Tuesday, while 10-year bond yields dropped to 6.6954%. These market movements follow the announcement of Sanjay Malhotra as the incoming Reserve Bank of India (RBI) governor, replacing Shaktikanta Das. Traders expect Malhotra’s appointment to bring a dovish shift to monetary policy, raising hopes for potential rate cuts to support economic growth. The RBI intervened to stabilize the rupee, according to market insiders.

Malhotra, a career bureaucrat currently serving as revenue secretary, takes office amid a challenging economic landscape of slowing growth and high inflation. His tenure is likely to influence the six-member monetary policy committee, particularly as Deputy Governor Michael Patra’s term ends in January. Analysts anticipate a February rate cut, a view strengthened by recent monetary easing measures, including a reduction in the cash reserve ratio earlier this month.

Economists and market participants see the leadership transition as pivotal. Anshul Chandak of RBL Bank noted that Malhotra’s appointment signals a shift towards growth-oriented policies, reflected in declining bond yields. The leadership change comes as India’s economy faces competing pressures of elevated inflation and a decelerating growth rate, setting the stage for critical monetary decisions in 2024.