Promise integrity, autonomy of RBI: Guv takes charge

MUMBAI: New Reserve Bank of India (RBI) governor Shaktikanta Das took charge on Wednesday, promising to uphold its autonomy and integrity, a day after the government moved swiftly to appoint him to the helm of the central bank to fill the vacancy left by Urjit Patel’s resignation.

The stock markets gave the thumbs-up to the prompt replacement of Patel, with the Bombay Stock Exchange’s benchmark Sensex surging 629.06 points, or 1.79%, to 35,779.07 at the close of trading. The National Stock Exchange’s broader Nifty rallied 188.45 points, or 1.79%, to 10,737.60. The rupee closed at 72.0150 per dollar compared with its previous close of 71.84, after initially dropping to a low of 72.20.

Das was economic affairs secretary and the government’s pointsman after the November 2016 invalidation of ~1,000 and ~500 bank notes that took out of circulation 86% of the country’s currency by value. On Tuesday, he was appointed RBI’s 25th governor, replacing Patel, who resigned on Monday with nine months of his term left for what he called “personal reasons”.

Patel previously had a disagreement with the Narendra Modi government over the cen-

tral bank’s independence, what to do with its surplus reserves, regulation of banks, and the need to infuse liquidity into lenders.

The career bureaucrat said he will carry along all stakeholders, take measures the economy requires in a timely manner and, as the first step, will meet the heads of public sector banks. The government is the key stakeholder, he said.

“I will uphold the autonomy, integrity and credibility of RBI as an institution. I will ensure that it is intact,” Das told journalists after occupying the corner office in the RBI headquarters.

“The RBI is a great institution, has a long and rich legacy.”

Das deflected queries on the differences between RBI and the government. “I wouldn’t go into

the issues between RBI and government but every institution has to maintain its autonomy and also adhere to accountability,” Das said. “I don’t know whether the government-RBI relationship is blocked, but I feel stakeholder consultations have to go on.”

He stressed that inflation targeting was a key role of the central bank and will remain important, adding that maintaining the growth trajectory of the Indian economy was also crucial. The RBI central board meeting will take place on December 14 as scheduled, he said.

Reactions to Das’ appointment were mixed. Analysts saw it as a signal that RBI would adopt a more dovish stance and open the way for monetary policy easing.

The RBI is a great institution and I will try my best to uphold its autonomy, identity and values.

There has to be free, fair, objective, and frank discussions between the government and RBI. SHAKTIKANTA DAS, RBI governor

Opposition figures predictably read political signals in his appointment, given his strong defence of the November 2016 note ban. State Bank of India chief Rajnish Kumar saw it as a signal of continuity.

“This will ensure continuity in monetary policy making and regulatory measures even as the global economy is passing through uncertain times. The financial markets will also significantly benefit from the appointment of newly appointed governor given his rich prior experience in fiscal policies and trade. This will also ensure a convergence of domestic and external policies,” Kumar said.

In a marked shift in expectations, some analysts and investors are now pencilling in a possible interest rate cut in the first half of next year. None of the analysts polled by Reuters late last month had predicted such a move in the near future, with most forecasting that RBI would hike rates one more time in the second quarter next year before taking an extended pause.

“We think his appointment has equally if not more important implications for monetary policy itself. We expect the new MPC to have more dovish leanings and think a window for a rate cut has opened in H1-2019,” Priyanka Kishore, an economist with Oxford Economics, wrote in a note. Rating company Fitch cautioned that Patel’s resignation highlighted the risks to RBI’s policy priorities. Increased government influence on the central bank could undermine the efforts to address bad loan problems at banks, it said.

“The resignation of the RBI governor... follows a period of government pressure on the central bank to spur economic growth, and highlights risks to the RBI’s policy priorities,” Fitch said in a statement.

The Opposition Congress party was predictably critical. “Shaktikantadas our new RBI Governor... A bureaucrat not an economist... Defended demonetisation. The Pied Piper will play the tune and the RBI will follow. Inevitable outcome will be that RBI’s reserves will be used for government doles. Yet another institution will diminish,” Congress leader Kapil Sibal wrote in a tweet.