New RBI governor likely to continue Rajan’s policies

Urjit Patel rbi

Aug 22, 2016 (LBO) – The Indian government has appointed a well-respected deputy governor Urjit Patel at the Reserve Bank of India to become the country’s next central bank governor, ending months of uncertainty over the appointment.

“Choosing Patel suggests that the government supports or at least is content to continue with Rajan’s policies at the RBI, some of which Patel helped to develop and implement,” Mihir Sharma, a Bloomberg view columnist, wrote.

“Patel led the team that worked out how to implement inflation targeting in India: It was on the basis of his report that the RBI and the government agreed earlier this year that consumer price inflation would henceforth be the central bank’s sole target.”

The naming of Urjit Patel comes after months of drama over whether Raghuram Rajan and the government were getting along, and whether Rajan would be granted an extension.

Rajan’s deputy is likely to at least listen to arguments in favor of lower interest rates from some in government, but expectations of speedy cuts are unlikely to bear fruit. Patel himself produced the target of four percent consumer price inflation, with CPI currently topping 6 percent.

“It’s a continuation of Mr. Rajan’s regime,” said Madhavi Arora, economist at Kotak Mahindra Bank Ltd. “Had the government wanted someone more dovish than Mr. Rajan, they would have picked someone else.”

According to the Wall Street Journal, Rajan, who took the helm of the RBI in 2013, is credited with helping arrest the rupee’s decline against the dollar and helped to bring down the country’s inflation rate.

Rajan was criticized by some politicians and business leaders for being too outspoken on matters other than monetary policy and for not doing enough to boost growth in Asia’s third-largest economy.

He has been popular, however, with most international investors, who have credited him with bolstering the RBI’s independence. Many said they will be watching closely to see if his successor continues to resist pressure from New Delhi to be more dovish.