Appointment of Dr. Urjit Patel as the Governor of the Reserve Bank of India (RBI) today indicates continuity. Dr Patel has worked closely with Dr Raghuram Rajan and many of the changes that have occurred in monetary policy framework is the brainchild of the duo. Hence, we expect markets to take the announcement in a positive manner. However, we do not any large scale impact on either the Indian rupee or bonds from the announcement.
A new inflation target regime has been officially adopted by RBI. At the same time, for the first time in independent India, monetary policy will be decided by consensus of the monetary policy committee (MPC) and not just by the governor. Inflation corridor is supposed to bring objectivity and transparency in the way rate path is decided. Therefore, we believe the impact of new governor will be beyond the scope of monetary policy. It shall cover areas like FX policy, banking supervision and still unexplored, financial market development.
Our financial markets like FX, government debt and credit markets lack depth and variety. The need for them is now more important than ever before. Hence, we would like to see, how the new governor and his team take up that job. We wish him all the best.
Anindya Banerjee is an analyst at Kotak Securities
