RBI Governor Shaktikanta Das
Reserve Bank of India Governor Shaktikanta Das. Image Credit: PTI

Mumbai: India reappointed central bank Governor Shaktikanta Das for another three-year term, keeping the career bureaucrat at the helm to help guide the economy's recovery from the ravages of Covid-19.

The decision, announced in a statement from the cabinet and effective when his current term ends Dec. 10, ensures continuity in monetary policy settings and signals to investors that any normalization of interest rates in the post pandemic-era will only be gradual.

Under Das, 64, the central bank endeavored to support growth and maintain liquidity through the worst of the pandemic by slashing interest rates and pursuing quantitative easing. His reappointment was not a surprise, with Das working to ensure a healthy working relationship with the government after his predecessor Urjit Patel resigned suddenly in December 2018 amid differences with Prime Minister Narendra Modi's administration.

"We see this as positive for policy continuity," said Teresa John, economist at Nirmal Bang Institutional Equities Pvt Ltd. "The RBI will continue with gradual normalization with no knee jerk reactions. We see this as supportive of slightly lower yields."

India's central bank now faces the risk of accelerating inflation just as the recovery from Covid-19 takes hold, a challenge policymakers globally are grappling with. Borrowing costs in India have been rising in recent months, a development the RBI has also helped by draining excess liquidity from the banking system.

India, which is emerging from a devastating second virus wave that saw daily cases top 400,000 in May, continued to see on average 17,565 new infections every day this month. Meanwhile, increased vaccination and easing movement curbs have spurred a recovery in demand.

The International Monetary Fund, as well as India's central bank, this month estimated gross domestic product will grow 9.5 per cent in the year ending March - the quickest pace among major economies - after contracting 7.3% last year.

Das, who was first appointed in 2018, has led the central bank's charge toward more financial inclusion in the under-banked South Asian country. As part of that thrust, he has made digital payments more accessible and opened a hub to encourage innovation in the financial sector.

As economic affairs secretary from 2015 to 2017, Das worked closely with the central bank and oversaw Prime Minister Modi's sudden and controversial move to ban high-value currency notes in late 2016, which hurt the economy and led to thousands of job losses.