Indian rupee, stocks down as central bank chief quits
The rupee sank more than one per cent against the dollar, with speculation swirling that an RBI intervention kept it from falling further.
MUMBAI: India’s rupee plunged on Tuesday after the country’s central bank chief quit following a dispute with the government that analysts say raises fears about its independence.
Urjit Patel stood down as governor of the Reserve Bank of India (RBI) on Monday evening following months of tensions with Prime Minister Narendra Modi’s government over interference in policy. Patel cited “personal reasons” for his decision but experts and media reports have said he was annoyed by New Delhi’s repeated efforts to impose its influence.
The rupee sank more than one per cent against the dollar, with speculation swirling that an RBI intervention kept it from falling further.
Indian stocks saw volatile trade, with the benchmark Sensex in Mumbai falling sharply at the opening bell before rebounding to sit slightly higher in the afternoon.
Analysts say Patel’s departure, extremely rare for a central banker before the end of his term, is evidence that the RBI’s autonomy is under threat.
“This is a clear signal of an eminent institution being attacked and its independence being chipped away one step at a time by the government,” independent economist Ashutosh Datar told AFP. “It is obvious Patel resigned because he faced a lot of pressure on issues such as bad loans, shadow banking, and the central bank’s independence.
“This will reflect badly on the government and probably affect the central bank’s sovereignty in the long run,” he added.
The shock resignation comes after Patel’s deputy, Viral Acharya, warned the government in a strongly worded speech in October that undermining the bank’s independence could be “potentially catastrophic”.
Indian business dailies reported in October and November that the government had invoked never-before-used powers to send at least three letters to Patel seeking to direct policy. Newspapers suggested Patel was close to quitting over the issue at the time, but the tensions were believed to have been diffused following clear-theair talks three weeks ago.
The government is believed to be unhappy with the RBI over a number of issues including its handling of interest rates, how to deploy reserves and what to do about the sliding rupee.
The rupee has been one of Asia’s worst-performing currencies this year, although it has bounced back in the past fortnight, while economic growth slowed to under eight per cent in the July-September quarter. It is understood the government is pressuring the bank to enact policies to help spur growth ahead of next year’s elections, when Modi will run for a second term.
“With the RBI governor’s resignation one more independent institution has fallen,” Rahul Gandhi, Modi’s rival from the Congress Party in polls expected by the end of May, said in a tweet.
A senior official from a government think-tank played down the resignation, however, saying the RBI was “not dependent on any one particular individual”.
“RBI’s institutional capabilities are very strong and they will do whatever is required for the markets and economy,” said Rajiv Kumar, vice-chairman of Niti Aayog, according to the Press Trust of India.