With a little help from RBI, Raghuram Rajan elevation, Indian rupee soars

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Raghuram G. Rajan took over as the 23rd Governor of the Reserve Bank of India. The 50-year-old economist took charge from D. Subbarao at Reserve Bank of India head quarters(RBI) on Wednesday. Express photo by Prashant Nadkar Raghuram G. Rajan took over as the 23rd Governor of the Reserve Bank of India. The 50-year-old economist took charge from D. Subbarao at Reserve Bank of India head quarters(RBI) on Wednesday. Express photo by Prashant Nadkar
SummaryThe Indian rupee wiped out initial losses and made a smart recovery on Wednesday.

a record low of 68.85 last week, marking a drop of 20 percent from the end of 2012.

"The intervention has been aggressive and the best part is it has been consistent today. Even dollar/rupee levels in the offshore and currency futures markets have sharply come down," said Anil Kumar Bhansali, vice president at Mecklai Financial.

Rajan, who famously predicted the 2008 global financial crisis, officially becomes the 23rd governor of the RBI after signing an oath of secrecy on Wednesday. But he will not take charge operationally until Thursday.

Aware markets are scrutinising everything he says for clues about his intentions, Rajan has been circumspect in public, revealing little about whether he will pursue the policies of his predecessor, Duvvuri Subbarao, or change tack.

"The rupee will be Rajan's first and key challenge. His IMF aura may help but he will need to win the market's faith by announcing something which helps bring in dollar inflows," said Vikas Babu Chittiprolu, a senior foreign exchange dealer at state-run Andhra Bank.

India's economy is reeling mainly from a dearth of investment and a slowdown in manufacturing activity and consumer demand.

Several banks, including Goldman Sachs this week, have cut their GDP growth forecasts to well below the decade low of 5 percent recorded for the year ended in March.

Traders said the economy has also been hit by the extraordinary measures from the RBI under Subbarao, who tightened cash conditions to make it harder to make speculative bets against the rupee and raised short-term interest rates.

Investors are showing little faith the government can push through substantial reforms, such as a hike in subsidised fuel prices, which could help revive confidence in the economy.

Prime Minister Manmohan Singh, in a statement ahead of a trip to Russia to attend the Group of 20 nations' summit on Thursday and Friday, said India would also need a more stable global environment.

"The Summit comes at a time when we in India have introduced several reform measures and taken steps to strengthen macro-economic stability, stabilise the rupee and create a more investor friendly environment," Singh said in a statement.

"At the same time, a stable

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