The appointment, for a three-year term, is a clear signal that the government favours continuity in policy-making at the central bank.
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Patel’s appointment will reassure markets by offering the promise of monetary policy continuity just as inflation ticks higher, though he is likely to face pressure from government officials who would like interest rates to come down.
“Patel led the team that worked out how to implement inflation targeting in India: It was on the basis of his report that the RBI and the government agreed earlier this year that consumer price inflation would henceforth be the central bank’s sole target”.
“Patel has played a key role in developing the new monetary policy framework that has focused on reining in inflation and imparted stability to the currency”, country’s largest private sector lender ICICI Bank’s managing director and CEO Chanda Kochhar said.
The government has already given legal backing to a policy framework for inflation targeting of 4 per cent with a 2 per cent point band on both sides.
“He (Patel) will hopefully control inflation as he has experience with monetary policy”, Minister of State for Finance Arjun Ram Meghwal told reporters here. His appointment comes after current governor Raghuram Rajan on June 18 said “no” to a second term as the head of the central bank. It was said that a lobby that did not want this clean-up and wanted the easy loans policies to continue were behind the literal ouster of Mr Rajan who will have had one of the shortest terms – three years – as governor.
The next bimonthly RBI policy, scheduled on 4 October, will be decided by the monetary policy committee (MPC).
The appointment has been made based on the recommendation of the Financial Sector Regulatory Appointments Search Committee (FSRASC), headed by the cabinet secretary. He is now holding the post of deputy governor of RBI. “By appointing Urjit Patel, the government has selected a candidate who can fit into the large shoes of Raghuram Rajan”.
So Patel was aptly suited for the top post at the Central Bank given his academic and professional credentials.
His views on monetary policy were expressed at the time Rajan held rates in the February 2015 review after making an unexpected rate cut the previous month – the first in almost two years.
Later, he was on deputation (1996-1997) from the International Monetary Fund to the Reserve Bank of India, before becoming a Consultant (1998- 2001) to the Ministry of Finance.
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Minister of state for finance Santosh Kumar Gangwar said, “I believe Patel will take the economy in the right direction”.
