Michael Patra Appointed RBI Deputy Governor For Three Years

The government today appointed Michael Patra as deputy governor of the Reserve Bank of India for three years, according to a press release by the Appointments Committee of the Cabinet.

Patra will replace Viral Acharya, who left office on July 23. He will be the fourth RBI deputy governor and will likely take over the monetary policy portfolio handled by Acharya.

Meet The New RBI Deputy Governor

Michael Patra, who joined the central bank in 1985, is currently executive director of the Monetary Policy Department. Patra has been central to the RBI’s views on the macro-economy, the new inflation targeting framework and the liquidity framework.

Patra is already a member of the MPC. As such, the person who takes over as executive director in-charge of monetary policy will be the new entrant into the committee.

The markets are well versed with Patra’s views on the current environment. While he was once seen as an inflation hawk, in the last three policies Patra has changed his view and supported interest rate cuts to support growth in the economy.

At the June meeting, Patra not only voted for a third interest rate cut but also called for fiscal support to the economy. “At this juncture: monetary policy by itself cannot bring about a reinvigoration of economic activity. Monetary policy is taking the lead as the first line of defence, but a coordinated full throttle effort by all arms of macroeconomic management is the need of the hour,” he said.

At the latest meeting in December, Patra along with the rest of the committee voted for a pause in rate cuts in response to rising inflation pressures.

Challenges For The New Deputy Governor

The immediate challenge for the new deputy governor will be to balance the emerging growth-inflation dynamics.

In its annual report released in August, RBI had noted that a soft patch in the economy had evolved into a cyclical slowdown. The central bank had added that while it does not see the current slowdown phase as a deep structural slowdown, certain long term challenges to growth in the economy need to be addressed.

Since then, growth has fallen further to 4.5 percent and the RBI has cut its growth forecast for the current year to 5 percent from 7.4 percent in February.

Even as growth remains weak, inflation, led by higher food prices, has started to pick-up. In response, the MPC surprised with a pause in interest rate cuts in its last policy review in December. The committee said it awaits more information on inflation and also look to the budget before deciding on the timing of further rate cuts.

RBI also continues to struggle with lack of transmission of policy rate cuts through banking channels. It introduced external benchmarking for retail and SME floating rate loans on Oct. 1 and is hoping to see improved transmission following that move.

Patra, who also heads the research department of the RBI, will also be looking to strengthen the central bank’s forecasting tools. In the last two years, the RBI has been criticised for missing the fall in inflation and the sharp fall in growth.