The government in consultation with the RBI had notified consumer price inflation target of 4% with upper tolerance level of 6% and lower tolerance level of 2% to be achieved by RBI.
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Fitch director Thomas Rookmaaker, the director of its Asia-Pacific sovereign ratings group, said Mr Patel would need to continue the fight against high inflation and shoring up weak balance sheets at lenders. Also, market is considering it as a hint of policy continuity by the RBI. He was first appointed as Deputy Governor for three years in January 2013 and was given an extension this January.
This committee will have three government nominated members along with the RBI deputy governor in charge of monetary policy, and an office member of the central bank. It is no longer the onus of the RBI governor to announce policy rates unilaterally.
Mundra further said his colleague Patel has been continuously involved with RBI and has a clear opinion on all issues.
Interestingly, according to the reports appearing in the Indian media, Patel recently moved to a small house to give his mother company and is reported to have declined an offer to head the newly formed BRICS (Brazil, Russia, India, China, South Africa) Bank in Shanghai to be with his mother.
But, after financial markets remained calm despite Rajan’s announcement that he would not seek a second term, they reverted to a timeline that would allow just enough time for an orderly handover – as was the case with Rajan’s own appointment three years ago. One of the pending tasks for RBI is the clean-up of non-performing assets from the books of commercial banks which was initiated by outgoing governor Raghuram Rajan.
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.
A deputy governor at RBI, the 53-year-old has been the go-to man for Rajan for the last few years.
Patel’s appointment is for a duration of three years based on the financial sector regulatory appointments search committee (FSRASC)’s recommendations.
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Echoing similar views, Rookmaaker said, “Patel’s appointment as the next RBI governor signals a strong likelihood of policy continuity”. Space for monetary easing will get constrained in FY18 as upside risks to inflation follow from GST implementation, house rent allowance (HRA) increases under the Pay Commission award, closing of output gap and supply-side bottlenecks.
