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India’s rock star central bank governor Raghuram Rajan surprised the market in June by announcing that he would prefer to return to academia and not seek another term as the chief of the Reserve Bank of India (RBI) that could have been the result of a bitter feud with the hardliners in the government. The right-wing hardliners of the ruling Bharatiya Janata Party (BJP) led by Subramanian Swamy declared war against the reappointment of Mr. Rajan, who drove criticism over his liberal comments with regard to religious and political freedom.
Mr. Rajan’s departure as a result of this feud raised eyebrows in the investment community as he has been widely considered as the best central banker India ever had and is widely credited with reforming the Reserve Bank of India. Under his regime, the Reserve Bank of India adopted the inflation targeting policy; Mr. Rajan is also credited with addressing the issue of the piling of the non-performing assets (NPA) in the banks. Naturally, his leaving made investors uneasy and many of them doubted government’s intention of reforms.
The Indian government responded well to assure investors that the policies that were adopted by Mr. Rajan would continue by appointing his deputy, Mr. Urjit Patel, a quiet technocrat. He is one of the key architects of current policies at the RBI. Back in 2014, Mr. Patel headed a committee that recommended the current inflation targeting policies that got the backing of Mr. Rajan and got agreed by the government. Nevertheless, he is likely to face pressure from the government with regard to cut in interest rates and the world of investors would keep a watch on how he handles that.
The rupee is currently trading at 67.2 per dollar.
