What's in store for the new RBI Governor Sanjay Malhotra?

This report is taken from CNBC's 'Inside India' newsletter this week that brings you insightful and timely news and market commentary on the emerging powerhouse and the big companies behind their meteoric rise. Like what you see? You can subscribe here.

The plan appeared to be on track in January: India's growth was outpacing other major economies The stock market has overtaken the Hong Kong market to become the fourth largest in the world Dozens of technology unicorns were in On the cusp of going public.

Twelve months on, investors and economists are concerned about high levels of inflation, low household spending, slow job creation, and insufficient private investment. the Miss India's latest GDP figures Obviously, the second quarter didn't help.

The government's latest moves Reserve Bank of India (RBI) Governor Shaktikanta Das has been replaced by Sanjay Malhotra It seems calculated, However, it is an accurate way to address the weakness of the Indian economy.

Malhotra previously served as Revenue Secretary in the Ministry of Finance. His appointment surprised some as Das' term was expected to be extended.

However, Malhotra's leadership is expected to bring “a new direction to the RBI,” noted Shilan Shah, deputy chief emerging markets economist at Capital Economics. This includes interest rate cuts as early as February 2025, analysts, including Shah, say.

India's benchmark interest rate is 6.5% – the same level it was when Das took charge of the Reserve Bank of India in late 2018.

In its monthly state of the economy report in November, the Reserve Bank of India wrote that high inflation “is weighing on urban consumer demand, corporate earnings and capital spending” and will “undermine the outlook” for economic growth “if allowed to continue unchecked.”

Since then, the central bank has lowered its GDP growth forecast for the 2025 fiscal year ending in March to 6.6% from 7.2% at its last monetary policy meeting.

The new governor said little about India's growth versus inflation debate in his first public address. However, he emphasized the key role that stability, confidence and growth play in guiding central bank decisions.

“On day one, it may not be appropriate to start with bouncers, Google users, and New Yorkers,” the 26th Reserve Bank of India Governor said at a press conference. Live press conference on Wednesday. (For the uninitiated, these are cricket terms that refer to bowling in an unconventional manner)

“Our economy still needs to be developed as we enter 'Amrit Kaal' and achieve the Vixit Bharat vision by 2047. It is a huge responsibility that we bear in ensuring that the growth achieved by this country continues,” Malhotra added. Amrit Kal is a phrase that roughly translates to “age of elixir.”

As investors ponder how Malhotra will carry out his role in 2025, CNBC's Inside India asked three market watchers what they expect and what decisions they would implement if they were in the governor's position.

“The central bank has just lowered the interest rate on loans to improve liquidity and basically signaled that interest rate cuts are coming,” said Dursun, who runs the central bank. “As investors, we are not looking for a meaningful change.” Global X Active India ETFHe explained. Global X's parent company, Mirae Asset, is One of the largest foreign asset managers in India.

Regardless of how Malholtra leads the charge at India's central bank, the senior portfolio manager says the South Asian powerhouse “looks as attractive as ever”.

He highlighted China's disappointing stimulus measures and additional headwinds from US President-elect Donald Trump that act as a “tailwind to the India story”.

Durson described the latest GDP statistic as a “one-time” decline, and expects India's growth rate to average 6% annually over the next five years. Therefore, he sees a “significant increase” in government spending during the next six months.

“Even if the government cannot meet the budget, this will allow officials to signal 'fiscal consolidation' which the market should also like. It looks like a win-win (for the Indian economy),” Durson added.

Inflation in India is slowing from a 14-year high. The country The headline inflation rate was 5.48% in Novemberslowing from the high of 6.21% recorded in November. The latest figure is also lower than the 5.53% expected by economists polled by Reuters, and comes as the Reserve Bank of India kept interest rates at 6.5% during its monetary policy meeting last week.

Indian outbound travel is expected to rise in the next decade. Indian travelers spent $34.2 billion on foreign travel in 2023According to the World Travel and Tourism Council. However, Lan Watts, Hilton's president for Asia Pacific, considers the current level to be “miniscule” compared to what is to come. “The story of India is before us,” he said, adding, “Outward-bound India will be the story of the next decade.”

Indian stocks fell this week. the Nifty 50 index It has fallen by 0.5% so far this week to 24,548.7 points. The index rose 13% this year.

The yield on India's benchmark 10-year government bond remained steady at 6.73% compared to last week.

On CNBC TV this week, BNP Paribas' Kunal Vora said local investors are absorbing a lot of volatility caused by the news flow over the past week. He immediately added that the stock market showed “High level of flexibility“Despite their cautious stance on investing in Indian stocks at the moment.

Meanwhile, Ramiz Shilat of Switzerland-based Vontobel Asset Management said a slowdown in India's economic growth would be “Largely temporary“The central government is likely to increase spending on infrastructure such as roads and railways.