AS MUCH as the financial markets they seek to influence, central banks need the confidence of investors to function. So uncertainty over their leadership and questions about their independence are seldom welcome. On August 20th Narendra Modi, India’s prime minister, belatedly appointed a new head of the Reserve Bank of India (RBI), nine weeks after Raghuram Rajan, the respected incumbent, surprised everyone by announcing he wouldn’t stay on the job for a second term (as most of his predecessors had) after his three-year term expires on September 4th.
The new governor is Urjit Patel, a former management consultant and corporate adviser, who has served since 2013 as one of four RBI deputy governors. Mr Patel is thought to be of similar ilk to his current boss. That is reassuring for investors still baffled as to why Mr Rajan, a former IMF chief economist with a good record as head of the RBI, was effectively sacked by Mr Modi.
Mr Patel’s remit at the RBI has been to help shape monetary policy. The newish inflation-targeting framework, which has been successful in stemming rising prices (helped by outside factors such as falling oil prices), is as much his as Mr Rajan’s. So is the incoming arrangement, whereby interest rates will be set by a panel comprising government and RBI appointees rather than the RBI’s boss being in sole charge. Though he lacks the stature of Mr Rajan, which probably helped fend off inevitable calls for lower interest-rates from ministers and industrialists, Mr Patel is seen as just as hawkish as the outgoing governor. His appointment should alleviate fears that Mr Rajan's exit was a ploy by Mr Modi to hobble a fiercely independent central bank.
Here is a PDF of The Economist's article.
Mr Rajan was apparently a little too outspoken for Mr Modi. Urjit Patel certainly has the qualifications to be governor of the Reserve Bank of India, where he has served as a deputy governor since 2013.
There is nothing to suggest that his appointment will unnerve investors in India. However, they may become concerned about the bureaucracy that Modi faces, which has eroded his overall majority slowed reforms. Meanwhile, the Sensex Index has lost upside momentum in a region of prior resistance, although it has not yet seen selling pressure in the form of a downward dynamic or bigger reaction that has occurred previously within the staircase upward trend since the big upside weekly key reversal at the end of February.
India’s long-term prospects remain promising. However, it faces somewhat higher short to medium-term uncertainties in common with all other stock markets.Back to top