Raghuram Rajan in a letter to colleagues at RBI announced his decision to not take up a second term at the central bank.
Lauding Raghuram Rajan for his work, Dr Arun Singh, Lead Economist at Dun & Bradstreet India on Saturday said RBI governor’s decision to call it quits September onwards has taken everyone by surprise. “Frankly I am quite surprised, but while I appreciate Rajan’s work, the idea that investors may not look upon India favourably anymore is not right,” Singh told FE Online.
“I have gone through Raghuram Rajan’s letter. He has highlighted some very key achievements and it’s great that he was able to bring stability to the economy on multiple fronts,” Singh said. “Rajan has also noted two unfinished tasks, monetary policy committee and ongoing banking sector stress management. Whoever takes over as RBI governor after Rajan must take note of these, especially banking sector stress,” Singh added.
Asked whether global and domestic investors would not take kindly to Rajan’s exit, Singh said, “I expect markets to react on Monday, but investors, whether domestic or global, look at multiple factors when picking countries and markets. India’s macroeconomic fundamentals are strong, and to that effect I don’t see this (Rajan’s exit) having a lasting impact.”
Rajan in a letter to colleagues at RBI announced his decision to not take up a second term at the central bank. “Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term. While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016,” he wrote. “I will, of course, always be available to serve my country when needed,” he added.
Following Rajan’s announcement, analysts are of the opinion that markets and rupee may see a period of volatility. “Raghuram Rajan’s decision to quit from the post of RBI governor in September will cause immediate volatility in the market, with rupee being weaker,” Jamal Mecklai, MD & CEO of Mecklai Financial told FE Online.
Commenting on the medium to long-term impact on Indian markets and rupee, Mecklai said, “Rajan was a credible force and a big factor for rupee’s stability. How rupee and markets will pan out going ahead is difficult to predict since there are many known unknowns such as Brexit, US Fed and Trump.”