Hawkish like Rajan, his focus on inflation to dim rate cut hopes?

MUMBAI/NEW DELHI: Continuity in Reserve Bank of India’s policies with a renewed focus on inflation management would be the central theme of Urjit Patel, who will take over as the central bank governor on September 6. While Raghuram Rajan’s term ends on September 4, 5th is a public holiday for Ganesh Chaturthi.

The focus on inflation, especially in the wake of recent data that shows that retail is trending above RBI’s upcoming 5% target, is likely to dim hopes of a rate cut, as the market believes Patel is equally conservative, like his predecessor Rajan.

The Centre recently accepted the RBI’s retail inflation target of 4%. But in July, consumer price index- based inflation stood at 6.07%, a two-year high.

“Patel is considered equally hawkish as his predecessor Rajan, if not more. Thus, expectations of a significant policy easing are likely to fade,” according to a Standard Chartered report.

The market is also expected to closely monitor Patel’s replacement, since the RBI deputy governor is one of the three members on the Monetary Policy Committee (MPC). The committee currently has RBI governor Rajan, RBI executive director Michael Patra as nominees.

“Patel has been at the helm of institutionalising the inflation targeting regime in the monetary policy framework. His appointment signals continuity of policy intent, both on part of RBI and the government,” said Arundhati Bhattacharya, chairman, State Bank of India, and reportedly one of the contenders for the job.

Echoing SBI chief’s views, ICICI Bank managing director and CEO Chanda Kochhar said: “His appointment ensures a smoothtransitionandcontinuity in monetary policy”.

Rahul Bajaj, chairman of the Bajaj Group, indicated the industry’s expectation of growth.

“I am confident that Patel’s decisions regarding interest rates, monetary policy and cleaning bad loans will be balanced. I am not someone who keeps harping on low interest rates, though my customers would naturally stand to benefit. While we need higher growth, inflation hurts everyone, especially the weaker section and the corporate sector,” he added.

Banks Board Bureau chairman Vinod Rai said it was “an excellent choice and he can hit the ground running. He is familiar with the situation and understands the economy.”