1. Raghuram Rajan doesn’t want a second term as RBI governor? Indian rupee & markets may bear the brunt, say experts

Raghuram Rajan doesn’t want a second term as RBI governor? Indian rupee & markets may bear the brunt, say experts

Raghuram Rajan is a darling of market experts, especially global investors, who have time and again lauded the RBI governor for his prudent policies

By: and | Published: June 1, 2016 4:37 PM
Raghuram Rajan, RBI Raghuram Rajan does not want to serve a second term as the RBI governor, if a news report is to be believed. (Express Photo)

Raghuram Rajan does not want to serve a second term as the RBI governor, if a news report is to be believed. According to the news report in Anandabazar Patrika, Rajan has told the government that he doesn’t want to continue as RBI governor after his term ends in early September. The Bengali-language newspaper has quoted unidentified sources close to Rajan. The report however adds that PM Narendra Modi is keen to retain him in the post.

This comes amidst speculation on whether the NDA government will give the world renowned Rajan a second term. BJP leader Subramanian Swamy has lashed out at Rajan in the recent past, accusing him of “damaging the Indian economy” by holding interest rates for too long. Swamy has also written to PM Modi demanding that Rajan be sacked even before his term ends.

But Rajan is a darling of market experts, especially global investors, who have time and again lauded the RBI governor for his prudent policies and sound fundamentals. Many credit Rajan for tackling India’s double-digit inflation trouble and rupee crisis effectively.

Rajan took over as the RBI governor at a time when India’s inflation was above 10% and the Indian rupee was staring at a crisis. Not only did he hike rates to tame inflationary expectations, Rajan also took a number of steps to stem the rapid depreciation of rupee – opening a swap window for deposits from NRIs, being one of them. Come 2016, rupee is stable and inflation has reduced to sub-6% levels.

Cheering his appointment, stock markets had in 2013 reacted positively with the BSE Sensex surging 1,430 points, or 7.70, in four trading sessions. The index soared from 18567.55 on September 3, 2013 to 19,997.45 on September 11, 2013.

Since Raghuram Rajan took over as RBI chief, rupee has plunged marginally by 0.25 per cent to 67.20 against dollar on May 31, 2016 from 67.03 on September 4, 2013. During his tenure, the Indian currency touched a high and low of 58.43 on on May 19, 2014 and low of 68.78 on February 26, 2016.

So, how will the Indian markets and rupee react if Rajan does not return as RBI governor? Jamal Mecklai, MD & CEO of Mecklai Financial & Commercial Services expects the Indian rupee and markets to weaken if the above scenario does play out. “If Rajan does not serve a second term, whether by his own choice or the government’s, the rupee and markets would definietly weaken,” Mecklai told FE Online. “Not only that I think markets and rupee will also be more volatile. However, whether the negative impact will be long lasting is difficult to say. A lot of conditions affect markets, and it also depends on who replaces Rajan,” Mecklai added.

Gaurav Dua, Head of Research at Sharekhan believes that the impact of such a situation will be short-lived. “If Raghuram Rajan will not serve his second term then markets may react negatively for a short period, but things will be digested over a period of time. Overall, markets are not looking cheap after the recent run-up. We are sticking to private banks, auto, consumption plays,” Gaurav Dua told FE Online

DK Srivastava, Chief Policy Advisor at EY India also has faith in India’s domestic fundamentals and expects the negative reaction to be short-lived. “If Rajan does not do a second term at RBI, I am sure the Indian rupee and markets will witness immediate downwards pressure. This is also because globally Rajan’s policies are well accepted and investors have immense faith in him. However, eventually India’s domestic fundamentals will take over and the markets and rupee will find their balance,” Srivastava said.

  1. R
    Rajan
    Jun 2, 2016 at 5:09 am
    I fully endorse that RR is the best candidate for the RBI governor post and if he is willing to be appointed for second term and if the government appoints him that's good news. However, taking it beyond that markets will crash, rupee will crumble etc is little stretched. We have to give credit to RBI as insution and people may come and go and no one individual can be "god". Such a hype by the media and investors is unwarranted. I would go by our PM words that media should not take much interest in his re-appointment.
    Reply
  2. U
    Uday Barad
    Jun 2, 2016 at 1:32 am
    These Pressutes are talking about Rajan's second term.....I would say his 1st term itself should be cut off before it is completed......!!! He has done many mischief as RBI chief, helped P Chidambaram's son, Vadera, etc.......but he was all out against common man ....!!! He must be terminated.....!!!!
    Reply
  3. S
    ssubramanyan
    Jun 2, 2016 at 2:35 am
    thank you Rajan, you left us with Rs 6lac crores NPA's and this is cconsidered good governance -may be by Indian standards. HAd you implemented some risk management anlaytics and improved Banks ability to forecast economic trends and improve INR Forex convertibility on capital account then i would have said you are great. During the three years you were governor 1. INr/USD exchange rate has depreciated by 30% (52 to 67)2. Our compeor Friendly neighbour China has taken giant step to make Yuan an international currency. Come September Yuan is also part of SDR basket currency of IMF -that just shows India is not making any strie in forex management. Then how can our global trade improve? How will we attract the much needed FDI money?
    Reply
  4. T
    Tom
    Jun 1, 2016 at 1:12 pm
    If on the other hand, if Rajan accepts a 2nd term, the villain SS should resign from BJP and restart his Janata party !
    Reply
  5. R
    Ramaguru Jakkala
    Jun 2, 2016 at 2:35 am
    "Fully mental Indian" Subramanian Swamy will come to their rescue.
    Reply
  6. S
    SJReddy
    Jun 2, 2016 at 3:15 am
    Good news , send this Half Indian and fully American. Now he don't need to renewal his green card.
    Reply
  7. V
    Vittalanand
    Jun 2, 2016 at 2:38 am
    SS has become a liability for BJP in allk policies of Government. He was not invited, but he himself affiliated to BJP. SS should retrospect his position and leave the party, if he thinks the policies of Government are unacceptable to him.
    Reply
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