Raghuram Rajan may well bag a second term as the RBI governor, with a report suggesting that PM Narendra Modi and FM Arun Jaitley are keen to retain him at the central bank. The news will come as a major relief to markets and economists.
“The government is likely to offer extension to RBI Governor Raghuram Rajan and the decision will be taken closer to August,” ET Now said citing its sources in the government.
“Reports of RBI governor Raghuram Rajan’s reluctance for second term are baseless. PM Narendra Modi and FM Arun Jaitley are keen on continuity of Rajan at RBI,” the channel said.
Speculation on Rajan’s second term has been doing the rounds for quite some time now, especially with BJP Rajya Sabha MP Subramanian Swamy openly asking for the RBI governor’s sacking. Swamy has even written a letter to PM Modi on the same.
Commenting on the speculation, Rajan in an interview to CNBC Awaaz said, “I cannot confirm or deny speculation on my tenure. You will have to wait for the announcement. Between now and September 4 there will be an announcement on my tenure.” “My longer-term desire is to get back to reasearch, academics and teaching,” he added.
On Tuesday, soon after releasing the RBI’s monetary policy review, Rajan had said that he can’t spoil the fun that the press is having on speculation of him continuing as RBI governor.
Rajan had said he can only point to the statements made by Prime Minister Narendra Modi as well as Finance Minister Arun Jaitley on the issue.
Both Modi and Jaitley have refused to comment on the extension of Rajan’s term, stating that this is not a “subject for media” to dwell on.
According to a Reuters report last week, Modi and Rajan have developed a close working rapport. With Modi’s patronage, it is more likely the government will reappoint Rajan, whose three-year term expires in September, should he wish to stay on, sources told Reuters.
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.
Jamal Mecklai, MD & CEO of Mecklai Financial & Commercial Services expects the Indian rupee and markets to weaken if Rajan is not reappointed. “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.
However, DK Srivastava, Chief Policy Advisor at EY India 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.