Patel announces shock exit as RBI chief before term
Congress says institution ‘denigrated’ by govt; Raghuram Rajan says ‘Indians should be concerned’
MUMBAI/NEWDELHI: Reserve Bank of India (RBI) governor Urjit Patel resigned from the position citing personal reasons with immediate effect on Monday, nearly 10 months before the completion of his term in September next year.
The announcement that could potentially roil currency and equity markets on Tuesday triggered a political war of words, with former prime minister Manmohan Singh saying he hoped that Patel’s sudden resignation was not a “harbinger of the [Narendra] Modi government’s attempts to destroy” the institutional foundations of India’s $3 trillion economy.
Prime Minister Narendra Modi said Patel left behind a great legacy and would be missed “immensely”. “Dr Urjit Patel is an economist of a very high calibre with a deep and insightful understanding of macro-economic issues. He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability,” Modi tweeted.
Finance minister Arun Jaitley was similarly effusive in his praise for Patel’s leadership of the central bank. “The Government acknowledges with deep sense of appreciation the services rendered by Dr. Urjit Patel to this country both in his capacity as the Governor and the Deputy Governor of The RBI. It was a pleasure for me to deal with him and benefit from his scholarship,” Jaitley wrote on Twitter.
Markets braced for a deep dive on Tuesday after crashing on Monday over the abrupt resignation of Reserve Bank of India (RBI) governor Urjit Patel, coupled with jitters in anticipation of assembly election results from five states. The Dow Jones index opened nearly 1% lower, while futures on the Nifty index in Singapore fell as much as 1.7%, signalling a lower opening for Indian markets on Tuesday.
Stocks, bonds and the rupee fell on Monday after exit polls of assembly elections in five states projected a likely setback for the Bharatiya Janata Party (BJP). The Sensex closed at 34,959.72 points, down 713.53 points or 2%, while the Nifty closed at 10,488.45, down 205.25 points or 1.92%. Investors took cues from the Asian markets as well, where the Nikkei fell 2.12%, Hang Seng 1.19%, and the Shanghai Composite 0.82%. These markets fell after data showed the trade dispute with the US is beginning to hurt the Chinese economy.
Exit polls released after market hours on Friday projected the BJP losing power in Rajasthan and facing a tight finish in Madhya Pradesh and Chhattisgarh— three states where it is in power. Results for Rajasthan, Telangana, Madhya Pradesh, Mizoram and Chhattisgarh will be announced on Tuesday, and are widely seen as an indication of the public mood ahead of general elections next year. Monday’s shock resignation of Patel, following a prolonged stand-off between the RBI and the government, has added to the uncertainty. The centre has been seeking to reduce curbs on lending, and gain access to RBI reserves.
Vinod Karki, vice president, strategy, at ICICI Securities Ltd, said, “It is clearly a negative surprise for the markets and there could be a sharp reaction on Tuesday. It also gives the wrong signals to global investors. Anyway, state election results are expected to keep markets very uncertain on Tuesday. Broadly, I feel markets may test the bottoms that we hit this year. Hopefully, that support level should stand.”
Markets have been volatile this year as crude prices soared and the rupee fell, further delaying a much-awaited corporate earnings revival. The lowest levels for the Sensex and Nifty this year were at 32,483.83 and 9,951.9 on March 23. Ajay Bodke, chief executive officer and chief portfolio manager (PMS) at broking firm Prabhudas Lilladher, said Patel’s resignation may cause a temporary flutter in the markets already on tenterhooks over assembly election results. “Global headwinds like escalating trade war between the US and China, Britain’s parliamentary vote on Brexit and fears of a slowdown in global economic growth in 2019 have already led to a sharp spike in risk aversion for risk assets like equities,” said Bodke.
The rupee and bonds were under pressure, partly due to a wider current account deficit (CAD) and the surge in crude oil prices. India’s CAD widened to $19.1 billion or 2.9% of gross domestic product (GDP) in JulySeptember, from $15.9 billion or 2.4% of GDP in the April-June quarter and 1.1% of GDP in the year-ago period. That gap was lower than a median $19.9 billion deficit predicted in a Bloomberg survey of 12 economists.
The rupee ended at 71.34 a dollar, down 0.74% from its Friday’s close of 70.81. The currency opened at 71.31 a dollar and touched a high and a low of 71.24 and 71.45 respectively. The 10-year government bond yield closed at 7.587% from its previous close of 7.464%.
(Ravindra Sonavane contributed to this story)