India's New Top Central Banker Signals Continuity and Stability


From September 4, Dr. Urjit Patel will take over the reins at the Reserve Bank of India (RBI), replacing Raghuram Rajan as governor. Under Rajan’s capable and laudatory three-year term in the position, the Indian rupee’s fall was stemmed and inflation curtailed. Patel inherits what is officially the fastest growing large economy in the world and his term will be the first time an RBI governor has had to share decision-making authority with a monetary policy committee – even though he retains the decisive vote. While debates over how much power dilution this constitutes rage on, the buzzword that sums up reactions to the appointment seems to be “continuity.”

While it is too soon to speak of the market’s reaction authoritatively, the most immediate sentiment seems to be relief after the uncertainty that prevailed since Rajan announced his decision to not seek a second term earlier this summer. Markets have reportedly been relatively indifferent to the announcement. Financial experts have predicted that the move will be a positive one, and will comfort investors, boosting confidence in the Indian economy. This sentiment springs from both the experience and the familiarity he brings to the position. Some have cited his wide experience, with a career spanning across the private sector, quasi government bodies, and the RBI itself.

Top businessmen largely indicate happiness with the choice, declaring that it bodes well both for investment and investor confidence. They expect balanced decisions from Patel, given his experience. Some are, moreover, hopeful that he will be able to balance a reduction in interest rates alongside stemming inflation.

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Important stock brokerages echo this sentiment, proclaiming that this is a welcome move. The range of emotions displayed, from relief to happiness, emerges from belief in the possibility of a smooth transition between Rajan and his successor. Patel has a background similar to that of Rajan and has a good understanding of his soon-to-be-predecessor’s vision, having worked closely with him. In fact, the monetary policy agreement that Rajan mediated had significant contributions from Patel’s panel’s report. Stock brokerages thus seem to agree that a major policy shift is not imminent – Patel is perceived as a source of continuity.

In many ways, by squaring in on the 52-year-old deputy RBI governor, instead of going for an external candidate, the Modi government seems to have curtailed the panic that could have ensued upon Rajan’s departure. As an internal candidate, with a reputation for being just as hawkish on inflation as his predecessor, Patel’s outlook is very likely to be both consistent and rooted in the ongoing framework. The consensus, therefore, seems to be in favor of this safe-bet decision.

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