Cash management may be Poonam Gupta’s priority – Poonam Guptas Priority May Be Cash Management

Newly appointed Deputy Governor of Reserve Bank of India (RBI) Poonam Gupta is likely to get the most important monetary policy department besides other departments. The central bank has started a cycle of interest rate cuts, in such a situation, Gupta will have to find ways to better benefit monetary policies. His appointment is a few days from the April meeting of the Monetary Policy Committee (MPC)
Has been before.

Gupta is the first woman Director General of New Delhi’s National Council of Applied Economic Research (NCAER) as well as a member of the Prime Minister’s Economic Advisory Council and convenor of the 16th Finance Commission. They may have to give up these responsibilities before assuming deputy governor.

The RBI’s six -member monetary policy committee will include a deputy governor in charge of Gupta Monetary Policy as a member. The committee cut the policy repo rate in the February meeting. Interest rates have been cut by the central bank for the first time in the last five years. The first meeting of MPC in the current financial year will be from April 7 to 9 in which the repo rate is expected to cut another.
Gupta has obtained a postgraduate degree in Economics from Delhi School of Economics at Delhi University and has a PhD in Economics from the University of Maryland, USA.

Despite the policy rate cut in February, it could not get the benefit in bank loan and deposit rate. Banks have cut the rate (EBLR) associated with external benchmarks. This type of debt is given to retail and small business and is mostly connected to the repo rate. But there has been no change in the rate of debt to the corporate, ie marginal fund -based rate (MCLR). The important thing is that banks have not yet cut deposits. The MCLR is linked to the cost of the fund, so they will not be in a position to cut MCLR until the deposit cost of banks will decrease. EBLR and MCLR holds 40–40 per cent in the loan book of banks.

There has been a shortage of cash in the banking system for about four months. However, in the last weekend, there was a minor surplus in liquidity. Customers do not get full benefit of rate cuts due to lack of Taratla. Through the open market operating auction and dollar-purchase/sales swap, the RBI has added more than Rs 5 lakh crore to the banking system, yet there was a lack of liquidity from January. Apart from this, Rs 1.8 lakh crore was added through the ripo maturing in early April.

Repo deduction usually takes time to benefit from banks and may take up to two quarters. But RBI Governor Sanjay Malhotra has said that the central bank wants to see the impact of repo deduction at the earliest at the rate of debt.

Malhotra policy in February

After the review meeting, it was said, “Our effort will be to increase cash in the banking system so that the rate deduction can be benefited soon.”
RBI officials will hold a meeting with bankers on Thursday to repair the cash situation in the banking system.

Gupta, an expert on issues related to large economics and emerging economies, is joining the central bank at a time when a debate is going on whether the RBI should target the main inflation rather than the headline inflation. Headline inflation is seen in the price due to the prices of food items. At this time this discussion is also important because the monetary policy structure is to be reviewed which will be effective for the next five years from April 1, 2026.

In August 2024, a joint paper by NCAER, along with Professor Barry Eyeshengreen of Economics and Political Science at the University of California, said that evidence showed that the target of inflation has led to better results in the last eight years, which has reduced inflation and also decreased.

The authors of the report suggesting to update the weight of food prices in retail inflation baskets, saying, “Given this record, RBI will be risky and unfavorable to RBI such as targeting core inflation instead of headline inflation or changing the target and spontaneity.” He suggested that in today’s time the weight of food items on per capita income should be 40 percent instead of 45.8 percent.

The paper states, ‘Due to an estimated increase in per capita income, it will probably decrease to about 30 per cent in a decade. This improvement will reduce concern about the system of setting the goal of current inflation.

The market is waiting for Gupta’s approach in April monetary policy whether it vote in favor of a 25 -basis points or more deduction as it indicates their priority between growth and inflation. It will also have to be seen whether she vote in favor of change in stance. In the February meeting, all six members of the committee voted for maintaining a neutral approach.

First Published – April 2, 2025 | 10:27 pm IST

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