The government appointed Patel as new governor on Saturday for a period of three years.
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Calling Urjit Patel a “competent economist”, Finance Minister Arun Jaitley today expressed hope that as the next RBI Governor he will be able to contain inflation and contribute in country’s economic growth. It signals a seamless continuity in the policies pursued by the RBI to conduct its monetary policy in an independent manner.
The move toward a more neutral liquidity stance marks an about turn after the RBI came under strong criticism from traders and bankers that it had kept cash conditions too tight – an area that was under Patel’s remit. He has been the key architect of inflation target and rate-setting panel.
Mr Rajan had been expected to stay for a second term but made a decision to return to academia. Under the agreement with the government, the RBI is committed to anchoring retail inflation at 4% (plus/minus 2%) and has set itself a target of 5% to be achieved by next March.
“The agency believes market perception of Dr. Patel as an “inflation hawk” will anchor the rupee’s near-term movement”, it added.
It is interesting to note that he joined International Monetary Fund as a Kenyan citizen. R3 was born Indian and chose to continue his US Green Card even though in India from 2007.”RBI had in June stated that Rajan is an Indian national and an Indian passport holder. This is welcome and worldwide investors will receive this very positively as continuity in policy formulation assures consistency and predictability of the Central Bank’s monetary stance”.
‘Nevertheless, some of the dovish sentiment that had crept into the market will likely be re-priced given that Dr Patel is viewed as being more hawkish, therefore yields could correct slightly higher in the near term’.
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.
He avoids large meetings and gatherings with colleagues and, in contrast to other deputy governors who had busier public schedules, gives few speeches or media interviews.
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Other front runners were former RBI Deputy Governor Subir Gokarn, Chief Economic Advisor Arvind Subramanian, Vice Chairman of the NITI Aayog Arvind Panagariya and State Bank of India Chairperson Arundhati Bhattacharya.
