India’s central bank meets for first rate decision since governor resigned

The Reserve Bank of India (RBI) will meet today to address liquidity issues. Economists surveyed expect the central bank to maintain interest rates at 6.5%.

Today’s meeting comes just days after the resignation of former Modi-appointed, RBI Governor Urjit Patel. Shaktikanta Das, a former civil service officer and economic affairs secretary under Indian National Congress and Indian People’s Party (BJP) governments, respectively, will now assume the governorship.

Inflation dipped to 2.33% in November, a 17-month low, which is well below the central bank’s 4% target. This should please Mr Das, who is a staunch proponent of demonetisation. However, food prices are falling faster than most, posting deflation since October and contributing to discontent among farmers.

After a less-than-impressive showing in five state elections over the past month, Modi’s BJP needs a strategy to rally support among rural supporters, many of whom work in agriculture. One potential avenue is loan waivers, which forgive select farmers’ debts. Given inflationary fears regarding the expensive program, such waivers would likely further increase tensions between the RBI and PM Modi.

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