A deputy governor at the Reserve Bank of India (RBI) since 2013, Patel is due to replace outgoing RBI governor Raghuram Rajan on September 4.
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One of the RBI’s four deputy governors, Patel, 52, was reappointed in January for another three years.
“Being an architect of the new policy framework, he retains high credibility for monetary stability”. The MPC, a brainchild of Rajan, is aimed to provide greater transparency to monetary policy decision making, while taking away the onus of interest rate decisions away from the RBI governor.
An aide to Modi praised Patel as “young and dynamic” and with a wide worldwide policy perspective. He was on deputation (1996-1997) from the IMF to the Reserve Bank of India and provided advice on development of the debt market, banking sector reforms, pension fund reforms, real exchange rate targeting and evolution of the foreign exchange market.
Like Rajan, Patel also worked with International Monetary Fund before coming to India – first at the Finance Ministry and then at RBI.
“It will assure global investors that the flexible inflation targeting framework will be taken to its logical end, and it’s absolutely essential for India’s monetary policy credibility”.
Patel, as deputy governor also was responsible for managing money markets, and has faced criticism for a tighter grip on liquidity, a criticism that Raghuram Rajan also faced.
India opted for a continuation of the reforms Raghuram Rajan by selecting one of his deputies to take over the central bank. “With Patel we have got another independent-minded, non-bureaucrat RBI governor”.
That arrangement may benefit from the presence of a consensus-builder in the mould of some central bank heads in developed markets. Some within the RBI describe Patel as a moody man who avoids social interaction and huddles only with close aides. This means the RBI bank will, henceforth, base its interest rate policies on retail inflation or consumer price index-based (CPI) inflation.
The next monetary policy review is on October 4.
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This ends weeks of speculation on who will succeed Rajan after he announced in June that he will not seek a second term. 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.
