Patel’s appointment to inject optimism into forex, bond mkts
STABILITY FACTOR Choice signals harmony between RBI and govt, offers comforting degree of continuity to Rajan’s policies: Experts
MUMBAI: Foreign exchange, bond and stock markets are likely to finally heave a sigh of relief.
The appointment of Urjit Patel as the next Reserve Bank of India (RBI) governor has injected optimism, and also brought to an end what industrialist Harsh Goenka aptly described as the most speculated event in the financial history of India.
“The appointment is that of a known person,” said Hemendra Kothari, a veteran investment banker. “The world is going through a difficult period and it is good to have a man of such experience. He has worked with current RBI governor, so the transition will be smooth. His leadership at RBI will be good in trying to find solutions to the problem of stressed assets.”
Nilesh Shah, managing director of Kotak Mahindra Asset Management, said the appointment “reassures both debt and equity markets.”
“Market participants will be keenly looking forward to the next credit policy to hear the governor’s viewpoint,” he added.
Ajay Bodke, CEO (PMS) at Prabhudas Lilladher, said: “Institutional investors, both domestic and foreign, would welcome the appointment. It signals a seamless continuity in the policies pursued by RBI to conduct it’s monetary policy in an independent manner.”
Bond traders would also be watching the space closely. The previous credit policy of Raghuram Rajan, which was his last as RBI governor, had led 10-year yields to fall by 5 basis points to 7.12%, a three-year low. A lower interest rate on bonds means it is cheaper to borrow money — this has been seen as tacit approval of Rajan’s regime.
Dhananjay Sinha, head of institutional research at Emkay Global, said markets will look at the appointment as a positive as it “mellows down somewhat concerns raised in several quarters on Rajan’s exit. This target, the current level of elevated inflation and a hawkish new governor will lay the backdrop of policy rate disposition, he added.
The appointment comes at a time when withdrawals of foreign currency deposits loom large, and stabilising the rupee appears to be the first challenge.
During September to December, outflows of up to $24 billion could tighten dollar and rupee liquidity. “We believe that RBI has all the tools in its armoury to get through this period without much stress. And it is already using some of these tools,” said Pranjul Bhandari of chief India economist of HSBC Securities.