The change of guard is a surprise as several market participants had expected incumbent Shaktikanta Das to be given an extension.The Indian rupee is likely to weaken to its lifetime low on Tuesday after the government named career civil servant Sanjay Malhotra to replace outgoing Reserve Bank of India Governor Shaktikanta Das, prompting heightened expectations of rate cuts next year.
The 1-month non-deliverable forward indicated that the rupee will open at around 84.80-84.82 to the U.S. dollar, eclipsing its previous all-time low of 84.7575 and lower from its close of 84.73 in the previous session.
Malhotra, who will relinquish his current role as the revenue secretary to the finance ministry, has been appointed as the RBI governor for a three-year term starting Dec. 11.
His appointment comes at a time when economic growth has slowed while inflation has picked up.
The change of guard is a surprise as several market participants had expected incumbent Shaktikanta Das to be given an extension.
"Malhotra's appointment is likely to increase market expectations of rate cuts in 2025, in terms of both quantity and timing," Standard Chartered Bank said in a note, adding that they expect the rupee to weaken towards 85.50 by end-December 2025.
The bank does not expect Malhotra's appointment to spur a significant change in the central bank's foreign exchange management policy.
Traders expect the RBI to intervene to quell excess volatility in the market on Tuesday and ensure that the knee-jerk reaction "doesn't get out of hand", a senior trader at a foreign bank said.
Asian currencies were mostly stronger on the day with the Chinese yuan up 0.2%, a day after China vowed to ramp up policy stimulus to spur growth in 2025, while the dollar index declined slightly to 106.1.
