Michael Patra: RBI's Inflation General Bids Adieu

Before every monetary policy press conference held at the Reserve Bank of India tower, reporters would fervently wait for commentary from the central bank's top brass. Why did the monetary policy committee—and by extension the RBI—decide to do whatever it did during a policy? What are they likely to do in the next policy? What are the RBI's estimates for growth and inflation?

Over the last four years, there has been only one man who the RBI Governor turns to, to answer these questions in detail. Deputy Governor Dr. Michael Debabrata Patra, who till last week headed the RBI's all-important monetary policy department, would field these questions on behalf of the central bank.

Alongside monetary policy, he also headed the financial markets operations department and the financial markets regulation department. Thus he was probably the best placed to pick these questions while keeping in mind the interplay between central bank commentary and interest rates.

Patra demitted office on Jan. 14, after having served five years in the deputy governor's chair and nearly 40 years at the central bank.

During his detailed responses, Patra would lay waste to any doubt over the RBI's seemingly clear path toward inflation management. But that laying waste would always be accompanied with a boyish grin and a flick of his iconic ponytail. A teacher by nature, Patra would always challenge the underlying assumptions posed by the questioner and force them to rethink the motivation behind their question.

Eventually, though, the central bank's caution was proven to be right, no matter what the consensus estimate was.

Take for example, the often criticised "withdrawal of accommodation" stance that the monetary policy committee maintained between April 2022 and August 2024. For most people outside the RBI, this stance made little sense, especially because the RBI's last rate hike happened in February 2023 when the benchmark repo rate reached 6.5%.

In June 2024, this reporter asked Patra why the MPC was maintaining the tighter stance for eight consecutive meets, especially when inflation was trending lower since January 2024, nearing the 4% target but not meeting it. To this he replied while grinning, "This is also the eighth consecutive time when the inflation has not aligned with the target."

By October, consumer price-indexed inflation shot up to a nine-month high of 6.21%, largely due to belligerent food inflation. It was then in the same month that the MPC changed its stance to a "neutral" one. Since then, inflation has consistently trended lower; however, the RBI continues to watch the food inflation number intently.

With his exit, the monetary policy committee will have also lost the last of its founding members. Patra was the first RBI-appointed member on the MPC, other than the Governor and Deputy Governor, in 2016.

It was only with him on the MPC where we saw an RBI member disagreeing with the Governor and Deputy Governor on the future course of rates. In August 2017, Patra and external member Ravindra Dholakia voted against a 25 basis point rate cut, while the other four members were in favour.

"The financial environment is bubbly and frothy. The combination of high valuations in equity and fixed income markets, an appreciating currency and the persistence of a liquidity overhang in the money market is a perfect recipe for a financial imbalance. A rate cut can amplify it if the central bank is seen as encouraging risk-taking," Patra had said in the August 2017 monetary policy committee meeting.

For four consecutive monetary policy committee meetings after, the repo rate went unchanged and finally in June 2018, it was hiked by 25 basis points. The repo rate was again hiked by another quarter of a percentage point in August 2018, as inflation spiked.

Patra is also a supporter of mixing levity along with serious policy making. In a speech he delivered in November 2022, Patra spoke about the need to make humour an integral part of monetary policymaking.

"My purpose is to show you that if you allow humour into the conversation, you might end up understanding monetary policy, its objectives, decision-making processes, forecasts and communication a little better," he had said.

On his last day at the RBI, instead of sending a long winding farewell email, Patra sent across a quirky PDF file consisting largely of images of a female tiger's life cycle. It was not surprising for most, as Patra's love for wildlife is not a secret. He often spends his free time chasing tigers for photographs in India's wildlife sanctuaries.

The story in his mailer was that of a young tiger cub born in captivity and then freed into the wild. The various challenges she faces and her growth from a cub in captivity to a majestic beast of the jungle. Toward the end, the reader gets a clearer sense that the tigress represents the RBI in its 90th year of existence.

"She pauses under her favourite palm tree and looks at me directly in a rare head-on, the beauty of her eyes arresting. Then, Light goes out. The pall of darkness descends," he ends his last note, reminding the reader of the RBI's logo.