“We assume continuity of the RBI’s policies under the new Governor, Dr Urjit Patel”, Marie Diron, Senior Vice President, Sovereign Risk Group, Moody’s, said. “The shift to inflation targeting at the beginning of previous year has contributed to enhance the credibility and transparency of India’s monetary policy”, she said.
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Its been one of the most awaited decision when Raghuram Rajan announced his decision to retire from the RBI Governor’s top post in June. I believe that he will be able to contain inflation with Monetary Policy Committee to assist him. Also, he is in charge of the monetary policy department and advocating the more relevant consumer price index (CPI) and not the wholesale price index (WPI) as the inflation targetting benchmark. “Thus, Patel’s appointment is a surprise, because he is generally seen as hawkish, which may dash hopes of aggressive easing, and rightly so, in our view”, Nomura said.
That arrangement might benefit from the presence of a consensus-builder in the mold of some central bank heads in developed markets.
“The government can not afford a radical change, but the thing of priority for them would be inflation, because inflation is showing its ugly head again at 6.05 percent in the last round”.
In what could be probably just another coincident, Finance Minister Arun Jaitley was in Mumbai, the country’s financial capital and home to RBI’s headquarters, on the day Patel was named as the next RBI chief. Indeed, his name had been doing the rounds as one of the probables likely to replace Rajan.
Both men worked for the International Monetary Fund and studied overseas, in Patel’s case at the London School of Economics and Oxford University before heading across the Atlantic to Yale for his economics doctorate.
Patel, who turns 53 in October, will also be among the youngest governors in RBI.
He has also worked as a consultant to the Ministry of Finance. “We have infused large amounts of liquidity, the government has lowered the small savings rate, now what else is left to make them cut rates faster?”
Patel on the other hand has maintained a low profile throughout his years at the RBI, and is expected to keep a quieter style of communication, Nomura said.
Another signal that goes out with this appointment is that the government is not, and will not be pushing for a dovish monetary policy (lower interest rates) and is not looking for a quick fix approach to the economy.
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As some of the big legislative changes have already been dealt with, it is reasonable to expect an Urjit Patel-led RBI to tinker with the existing systems and processes to increase the efficacy of policy rate changes.
