It was finally set up by amending the Reserve Bank of India Act, 1934, through the Finance Bill 2016.
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Patel, now an RBI deputy governor, had been seen as among the more hawkish candidates that had been in the running to take over from Raghuram Rajan, who steps down as governor on September 4.
Till the government appoints a replacement for Patel as the deputy governor, it will have to appoint one among the three DG – R Gandhi, SS Mundra and NS Vishwanathan – to oversee the critical monetary policy aspect in the interim. Besides, at least five former Governors had served at International Monetary Fund before becoming RBI chief, while a few others went on to work at International Monetary Fund after leaving the central bank.
The government is soon expected to announce the lineup of the six-member Monetary Policy Committee to decide on interest rates.
During his tenure at the RBI Patel was seen as a close lieutenant of Raghuram Rajan and e was instrumental in introducing major changes in the monetary policy formulation of the central bank. He stated that RBI should look to contain inflation as measured by the Consumer Price Index at 4% in a band of 2 percentage points on either side.
“He (Patel) will hopefully control inflation rate since he has experience of monetary policy”, minister of state for finance Arjun Ram Meghwal told reporters on Monday. Outgoing Governor Rajan has appointed Patel and Michael Patra as RBI nominees to the MPC which will be headed by the central bank Governor himself.
The Finance Minister said Rajan has done his job well. The expectations of a rate cut from the architect of the new inflation targeting framework dimmed, pushing up the yields on government bonds by 0.06% to 7.16%, wiping out the gains last week when the yields had hit a low of 7.10%.
Not many market participants expect a rate cut in the October policy meeting as retail inflation is higher than the central bank’s March 2017 target of 5 per cent. “At a time when RBI policy will be decided by a monetary policy committee, good communication skills are a necessity which is lacking in him”. Yet he was the first RBI governor in more than two decades to not have his first contract renewed. “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. He will have a casting vote in case of a tie.
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A Ghosh was the Deputy Governor since 1982 when he was appointed Governor for a brief period of 15 days in 1985 till RN Malhotra could take over.
