RBI chief resigns on ‘personal reasons’

RBI deputy governor Viral Acharya said in a speech in October that undermining a central bank’s autonomy could be “catastrophic”, prompting a public dispute that added to the rift between the bank and government.

The Modi government has stacked the RBI’s 18-member board with its own nominees, in what critics say is a move to exert greater control over the central bank’s regulatory powers.

On Twitter, Modi praised Patel as a “thorough professional with impeccable integrity”. “He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability,” Modi tweeted. “He leaves behind a great legacy. We will miss him immensely.”

There was speculation a month ago that Patel might quit over the government pressure, but the rumours eased after the government and central bank reached an uneasy truce ahead of a RBI board meeting last month.

Patel resigned before results from crucial state elections are declared on Tuesday and ahead of an RBI board meeting on Friday.

“The timing just before this week’s board meeting suggests that there’s still a huge gap between the government and RBI positions on key issues,” said A. Prasanna, head of research at ICICI Securities Primary Dealership in Mumbai. “Markets will now hope that the government has a plan of action ready so as to restore calm.”

Patel’s resignation is expected to roil financial markets on Tuesday. Investors will want to know who is Patel’s replacement and how that will affect the direction of financial and monetary policy, analysts said. “Markets certainly will be concerned unless there is further clarification that comes through tonight,” said R. Sivakumar, head of fixed income at Axis Mutual Fund.

“I think tomorrow and over the next few days, we can expect heightened volatility in the markets,” he added.

Rupee non-deliverable forwards weakened 1.6 per cent on the news, which came after the close of regular trading in Mumbai on Monday. Futures on the Nifty 50 Index of equities fell 1.4 per cent in Singapore. The benchhmark Sensex closed 2 per cent lower at 34,959.72 points while Nifty ended 1.92 per cent at 10,488.45 points.

Markets will now hope that the government has a plan of action ready so as to restore calm

A. Prasanna, head of research, ICICI Securities Primary Dealership