Indian bonds and currency fell on Monday as investors took the appointment of Urjit Patel as the next governor of the Reserve Bank of India as a signal of policy continuity at the central bank, making a near term cut in interest rates unlikely.
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Mr Patel, who has a doctorate from Yale, had widely been seen as ensuring the most continuity among the candidates believed to be in the running to be the next governor.
The government nominees to the MPC have been shortlisted by a Search-cum-Selection Committee headed by the Cabinet Secretary with RBI Governor and Economic Affairs Secretary and three experts in the field of economics or banking or finance or monetary policy as its members. For USD-INR, we expect it to continue to hold within the 66.50-68.00 range, it added.
Urjit Patel will assume the role with the Reserve Bank of India on September 4.
The naming of an insider to the top job suggests the government hopes to continue the approach of the much-admired outgoing chief – dubbed “rock-star Rajan” – when he steps down on September 4.
Patel is the eighth Deputy Governor at RBI to be made Governor, the last being YV Reddy. “It brings to mind an old African saying that when elephants fight, the grass suffers”, Patel said at the press conference to announce the policy review, on the trend of accommodative monetary policies being adopted by developed economies.
“He has to work freely because the RBI Governor has to work as autonomous body and has to work independently, that is how we have to take the country forward”. He was particularly picked for his expertise in inflation-control, which has become the main task of the central bank, ever since the government, under statute, set it a target of 4 percent, plus or minus two percentage points, based on consumer price index.
Finally, the months of speculation has ended as Prime Minister Narendra Modi appointing Urjit Patel as the successor to the dynamic Raghuram Rajan.
Prior to his appointment as the deputy governor, Mr Patel was Advisor (energy & infrastructure), Boston Consulting Group.
Rajan was criticized by some politicians and business leaders for being too outspoken on matters other than monetary policy and for not doing enough to boost growth in Asia’s third-largest economy.
He has a long association with India’s central bank, dating back to 1997, when he first offered advice on the debt market and pension fund reforms, among other things.
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The appointment of Patel, who has spent most of his career in India, should also appease more strident members of Modi’s Hindu nationalist government who criticised Rajan – appointed by the previous Congress government – as too foreign.
