India Central Bank Deputy Loses Portfolios After Signaling Rate Increase
A Reserve Bank of India deputy governor, who indicated the central bank would raise interest rates days before an unscheduled move, was stripped of his powers over urban banks and human resources.
K.C. Chakrabarty, 58, also lost control over the departments of rural planning and credit and payments and settlement, according to a statement on the central bank’s website late yesterday. He will keep customer service and information technology, the statement showed.
Chakrabarty on June 28 said the central bank will raise rates anytime and four days later Governor Duvvuri Subbarao increased borrowing costs. The Economic Times today said he’d been divested of his roles after saying July 29 monetary policy tightening should be more aggressive, two days after the central bank raised the benchmark for the fourth time since mid-March.
Chakrabarty told Bloomberg News he hasn’t given any comment “in public,” adding he may have a different view in private.
“The RBI is trying to stress that there should be no blurring of lines between personal opinions and the opinion of the central bank as a monetary authority,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. “Looks like it’s a very compelling reason.”
RBI spokeswoman Alpana Killawala today said the reshuffle is a “routine” affair. “We do this kind of shuffle on a need basis,” Killawala said in an interview from Mumbai.
Stocks, Bonds
The yield on the 10-year government bond climbed 3 basis points to 7.84 percent at 4:50 p.m. in Mumbai, the Bombay Stock Exchange’s Sensitive Index rose 0.6 percent while the rupee was little changed at 46.17 against the dollar.
Chakrabarty, a career banker, joined the RBI as a deputy governor in June 2009 after serving as the chairman and managing director of Punjab National Bank Ltd., a state-run lender.
Subbarao on July 27 increased the reverse repurchase rate by half a percentage point to 4.5 percent and the repurchase rate to 5.75 percent from 5.5 percent.
Two days later, bond yields climbed to the highest in almost three months after a central bank official, who spoke on condition of anonymity, said the RBI’s current rate stance isn’t sufficient to deal with inflation and that borrowing costs should have gone up much higher.
‘Last Straw’
“News reports last week that the central bank should have been more hawkish were the last straw,” said Killol Pandya, who manages the equivalent of $135 million in debt funds at Shinsei Asset Management Pvt. in Mumbai. “The comments accelerated the spike in yields.”
The rate moves this month came after economists at Kotak Securities Ltd. and Capital Economics Ltd. said the Reserve Bank was behind the curve in tightening its monetary policy.
Consumer prices paid by industrial and farm workers in India are running close to 14 percent, government data show. That’s the most after Venezuela’s 32 percent inflation rate, according to Bloomberg data compiled from 82 countries.
Prices are rising as demand outstrips supply of manufactured goods and services in Asia’s largest economy after Japan and China.
India’s manufacturing growth accelerated in July, a survey of purchasing executives showed this week.
India’s service industries including telecommunication and banking, which make up about 55 percent of the nation’s $1.2 trillion economy, expanded for a 15th month in July, according to the Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics today. The index was at 61.7 after touching a two-year high of 64 in June, the report showed.
Mobile phone companies including Bharti Airtel Ltd. added 12 million new subscribers in June, according to the Cellular Operators Association of India, signaling growing demand.
“On a trend basis, HSBC’s service sector is still heading higher,” said Frederic Neumann, a Hong Kong-based economist at HSBC Holdings. “Rates in India need to go higher. Expect plenty of action in the quarters ahead.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
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