- Modi’s pick to lead RBI begins three-year term on Sept. 4
- Patel one of the architects for the banks’s rate-setting panel
Prime Minister Narendra Modi promoted a deputy governor to lead India’s central bank, ensuring that sweeping reforms initiated under Raghuram Rajan would continue.
Urjit Patel, who oversees the monetary policy department at the Reserve Bank of India under Rajan, has been appointed for three years from Sept. 4, the government said in a statement on Saturday.
Patel, 52, has been a key architect of the central bank’s biggest overhaul in eight decades, including a shift to a consumer-price inflation target and the creation of a rate-setting panel. A fiscal conservative, Patel in 2006 argued that large budget deficits have depressed India’s savings and investment.
“This will signal continuity of the current policy regime,” said Navneet Munot, who oversees $18 billion in assets as chief investment officer at SBI Funds Management Ltd. “It indicates that the government is quite focused on having sound monetary and fiscal policies. It should be a very positive signal to investors and rating agencies.”
Patel holds a doctorate degree in economics from Yale University. He joined the central bank in 2013 from Boston Consulting Group. He has also advised Indian governments, worked with the International Monetary Fund and was in charge of business development at Reliance Industries Ltd. -- controlled by India’s richest man, Mukesh Ambani.
Investors perceive Patel to be on the “same page” as Rajan in his inflation fight and attempts to clean up bad debt in the banking sector, said SBI Assets’ Munot. Those are the two areas Rajan has identified as unfinished tasks. Patel’s credentials may be tested soon as a rebound in oil prices, increased pay for central government employees and higher food prices threaten to stoke inflation.
Consumer prices accelerated to 6.07 percent in July, above Rajan’s forecast of 5 percent by March 2017. The Reserve Bank’s target is to keep inflation between 2 percent and 6 percent.
“There’s no scope for a rate reduction in this financial year and I think the same applies for the next financial year,” said Anjali Verma, an economist at PhillipCapital Ltd. Patel “will remain an inflation hawk.”
In an address in Mumbai on June 20, Rajan urged his successor to continue the battle against steep price rises, saying any diversion would impose a “hidden inflation tax” on the poor and middle classes.
Rajan became a target of Hindu hardliners in Modi’s party who questioned his allegiance to India and accused him of keeping interest rates too high. After Rajan announced his decision to leave, Modi denounced the personal attacks on him.
Rajan leaves the legacy of an official inflation target and the forthcoming establishment of a Monetary Policy Committee to set interest rates, which is currently being set up. He also stabilized the rupee and forced lenders to set provisions for bad loans in a bid to clean up the banking system.
An index of bank shares jumped 10 percent compared with a 5 percent increase in the benchmark S&P BSE Sensex since Rajan said he will quit, on speculation the next governor may ease some of the bad-loan rules. The rupee dropped 0.3 percent in the period.
“The markets should exhale,” Anand Mahindra, chairman of Mahindra & Mahindra Ltd., India’s biggest maker of SUVs said on Twitter. Patel is “young, qualified and experienced.”