Sanjay Malhotra, India’s newly appointed central bank governor, is likely to introduce an interest rate cut in his first monetary policy meeting, shifting focus towards economic growth amid rising global uncertainties. Taking office in mid-December, Malhotra is expected to steer away from the cautious stance of his predecessor, Shaktikanta Das, who maintained steady interest rates for two years while striving to keep inflation at 4%. Most economists surveyed predict the Reserve Bank of India (RBI) will lower the benchmark repo rate by at least 25 basis points to 6.25% on Friday, though some analysts suggest a more aggressive 50-basis-point cut is possible.

Malhotra leads an almost entirely new six-member monetary policy committee (MPC), with Deputy Governor M. Rajeshwar Rao temporarily filling in for Michael Patra, who retired last month. Three external members also joined the MPC in October. A former revenue secretary in the Ministry of Finance, Malhotra has yet to make any public speeches since his appointment, making it difficult to gauge his stance on inflation and currency management. However, insiders suggest he favors a more flexible approach to the rupee compared to his predecessor, allowing it to move in line with global peers.

Recent economic data showing slower-than-expected growth, coupled with market jitters triggered by new U.S. trade tariffs, adds further justification for a rate cut. If the RBI eases rates this week, it would follow last week’s record $12 billion tax cuts announced in Prime Minister Narendra Modi’s budget to stimulate the economy.

“Monetary policy will have to take the lead in supporting growth in 2025 and beyond,” said Kaushik Das, chief economist for India at Deutsche Bank AG. He warned that delaying action could risk falling behind the economic curve. Malhotra is set to announce the RBI’s decision in a televised address at 10 a.m. in Mumbai. Analysts will closely watch his policy statement and press conference for signs of his commitment to the 4% inflation target and potential signals on the depth and duration of the easing cycle.

While most experts agree on a policy shift, opinions differ on the extent of rate cuts. Taimur Baig of DBS Group Holdings expects a shallow cycle, whereas Sajjid Chinoy of JPMorgan Chase foresees a prolonged series of quarter-point cuts, provided global conditions remain stable. With economic growth slowing to a four-year low and inflation projected to moderate around 4.5%, Chinoy believes the RBI has room to ease monetary policy significantly. A rate cut may also come with a shift in the RBI’s policy stance from “neutral” to “accommodative,” according to Aastha Gudwani, chief economist at Barclays India. The central bank had adopted a neutral stance in its October meeting.

Market watchers will also pay close attention to Malhotra’s comments on the rupee. Unlike Das, who tightly controlled the currency’s movement, Malhotra appears more willing to let it fluctuate with market forces. Since he took charge in December, the rupee has depreciated over 3% against the dollar, reflecting increased volatility. However, the RBI is expected to continue intervening to manage excessive fluctuations rather than targeting a fixed exchange rate.

Following the RBI’s $18 billion liquidity injection last month, swap rates now fully account for a quarter-point rate cut. However, banking liquidity remains tight, with a cash shortfall peaking at ₹3.3 trillion ($37.9 billion) last month due to forex interventions and tax outflows. While the shortfall has since reduced to ₹60,000 crore, experts believe more liquidity measures are necessary.

“The RBI has been proactive in injecting liquidity, but further action is needed,” said Suyash Choudhary, head of fixed income at Bandhan AMC Ltd. “For any rate cut to be effective, it must translate into lower lending rates.” As Malhotra prepares to unveil his first major policy decision, markets and analysts alike will be looking for clear signals on the direction of India’s monetary policy in the months ahead.

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