While the outgoing RBI governor is known as somebody who openly took on the government’s critical reform initiatives in previous year or so, Patel is known as someone who has so far mainly stuck to his mandate and commented mostly on monetary policy-related issues.
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Another signal that goes out with this appointment is that the government is not, and will not be pushing for a dovish monetary policy (lower interest rates) and is not looking for a quick fix approach to the economy.
“The clean-up of banks’ balance sheet has started and it would be credit positive from a sovereign perspective, if it led to improved bank capitalisation levels, renewed loan growth and robust risk processes”.
At home, he is seen as carrying less political baggage than Mr Rajan, which may help Mr Patel in his dealings with Mr Modi and Finance Minister Arun Jaitley.
“He will hopefully control inflation as he has experience with monetary policy”.
The RBI governor and deputy governor in charge of monetary policy will be ex officio members and the governor will have casting vote in case of a tie. It will be made up of himself and two other RBI officials, along with three members appointed by the government.
His predecessor, Raghuram Rajan, announced in June that he would step down as RBI governor, setting off a wave of speculation over the circumstances of his departure and the future of India’s economy.
“Patel has been at the helm of institutionalising the inflation targeting regime in the monetary policy framework”. He has also served as a consultant to the Ministry of Finance between 1998 to 2001.
Another leading industry chamber Confederation of Indian Industry (CII) welcomed the appointment and said that it intends to work closely with the new Governor.
I would like Patel to focus on several issues allowing cooperative banks to collect tax from their members and deposit to the government through HDFC bank as before.
As he takes office, inflation will certainly be on top of his agenda, especially with retail inflation continuing to be a cause of concern. He was with International Monetary Fund (IMF) between 1990 and 1995 and worked on the US, India, Bahamas and Myanmar desks. “This may see the market move some of the rate cuts further along the curve”, said Vaninder Singh, Asia economist at RBS. He was the one who suggested that India should adopt Consumer Price Index (CPI) as a measure of inflation, and that inflation should be the nominal anchor for the monetary policy framework.
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“The agency believes market perception of Dr. Patel as an “inflation hawk” will anchor the rupee’s near-term movement”, it added.
