Raghuram Rajan's exit: Investors expect effective leadership from Modi, they can ignore other noises in the country, but it won't be possible to ignore Rajan's exit, says Jamal Mecklai.
Mecklai tells FE Online, “The fact is that whether Rajan quit of his own accord or because of some foolish comments by people, the investor perception will be that the government has not been able to handle this situation. Investors expect effective leadership from Modi, they can ignore other noises in the country, but it won’t be possible to ignore Rajan’s exit.”
Mecklai goes on to say, “Rajan’s decision has taken me by surprise. I had expected him to stay.” Commenting on the medium to long-term impact on Indian markets and rupee, Mecklai adds, “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.”
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.
In a letter that highlights challenges that Indian economy faced at the time of his joining, Rajan describes the goals that he had set for himself and how he achieved them with the help of his team.
“I am sure the reforms the government is undertaking, together with what will be done by you and other regulators, will build on this platform and reflect in greater job growth and prosperity for our people in the years to come. I am confident my successor will take us to new heights with your help. I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together!” he wrote in the end.