View: Shaktikanta Das has the easiest, most unenviable job in central banking

Shaktikanta Das has one of the easiest jobs in central banking. He just has to keep doing what he’s been doing since becoming governor of the Reserve Bank of India last December: cut interest rates. Fortunately, political will is on his side.

That’s an enviable state of affairs for a central banker these days. Just look at Federal Reserve Chairman Jerome Powell, who has become a constant target of President Donald Trump’s Twitter tirades. It’s also face-saving for Das that politics and economics are pointing in the same direction. He took up this post under a cloud of question marks about the RBI’s independence. Das’s immediate predecessor, Urjit Patel, quit abruptly almost a year ago, just as the government was ratcheting up pressure for the institution to hand over some of its reserves to free up fiscal spending.

The troubling state of Asia’s third-largest economy makes Das’s task uncomplicated. The country’s pace of economic growth is slowing dramatically; government numbers due late Friday may well show the expansion slipped below 5% last quarter, the weakest pace since gross domestic product figures were reconfigured in 2012. Last year, the nation was churning out GDP numbers with an 8 in front of them. Many big economies have been slowing, but it’s hard to think of another where growth has come down to earth so quickly.

For Das to even contemplate taking his foot off the monetary pedal now would be a mistake. He should look past the recent uptick in inflation last month, largely attributed to vegetables such as onions, a staple of Indian cooking. Those price gains helped push the measure beyond the RBI’s 4% medium-term target. More important is the slide in core inflation, which strips out volatile commodity prices. This points to a demand problem in the economy, as my Bloomberg Opinion colleague Andy Mukherjee wrote here.

Das says policymakers will keep cutting rates until growth revives. The five reductions he’s overseen haven’t given the economy back its groove; so the mission is clear going into next week’s meeting, when the central bank is expected to cut again. His global peers may have done well to adopt the same approach. It’s clear from the Fed’s retreat that the hikes in 2018 went too far in the face of anemic inflation. The European Central Bank had barely curtailed quantitative easing before it had to start all over again.

Lest Das be tempted to sail through, there’s the iceberg of India’s banking industry to consider, which is saddled with one of the world’s most dangerous loads of bad debt. The trouble is, about 60% of the financial system is controlled by state-run banks that report to the government, so Das’s ability to influence them is constrained. At some point he may well have to challenge entrenched political interests.

The other hurdle is that India’s broken financial system hinders the ability of rate cuts to flow through the economy. Shadow banking, a big source of weakness, was also a major source of lending. That spigot appears to have largely dried up.

I wrote in February that Das was lucky: Economic need trumped the political circumstances surrounding his first rate cut. But luck doesn’t last forever. It wasn’t too long ago that economic aspirations for India echoed China’s. Now this young country of 1.4 billion people is looking more like Indonesia, Malaysia or the Philippines — that is, just another middling emerging market. If India’s growth falls off a cliff, Das will need more than rate cuts and a good reputation to rescue it.