Bilkulonline.com, New Delhi, Aug 22: Welcoming the appointment of RBI Deputy Governor Urjit R. Patel as the next Governor of the central bank, the government on Monday said that he should be able to contain inflation within the target of 4 per cent, plus or minus two percentage points.
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A seasoned economist, Patel will have to appoint a member on the Monetary Policy Committee (MPC), deal with the problem of mounting non-performing assets (NPAs) of banking sector sand most importantly maintain the legacy of Raghuram Rajan. Rajan won the respect of investors for helping stabilise confidence in India after taking over in 2013 when the country was in the midst of a currency crisis.
The government appointed Patel as new governor on Saturday for a period of three years. It signals a seamless continuity in the policies pursued by the RBI to conduct its monetary policy in an independent manner.
Dr. Patel’s appointment should bring cheer for markets as there won’t be major disruption in the RBI policies.
And the government of Prime Minister Narendra Modi, which has been agonising over this decision for a while, is likely to feel comfortable too. During his tenure the 10-member S&P BSE India Bankex rallied 121 percent, more than double the 51 percent advance in the benchmark S&P BSE Sensex.
Traders expect Patel to keep the repo rate on hold at the RBI’s next policy review on October 4 after inflation accelerated to 6.07 percent in July, above the RBI’s near-term target of 5 percent.
Patel, the media-shy Deputy Governor of the RBI, is all set to take over as the Governor at the 81-year-old institution on September 4. “Dr Patel has been at the helm of institutionalising the inflation targeting regime in the monetary policy framework”.
UBS Securities said also that most of the views of the incoming RBI governor are similar to Governor Rajan.
The government has already started the process of finalising three members for the panel, while the RBI has nominated executive director Michael Patra to be its nominee on it, in addition to the governor and the deputy governor in-charge of the monetary policy department.
Talking about Patel’s term, Goldman Sachs said, with Patel in the central bank’s chair, “RBI will continue its focus on bringing down inflation”.
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The rupee has been stable through Rajan’s tenure through frequent interventions – closing on Friday at 67.07 to the dollar, or nearly the same level as when Rajan took over.
