RBI seen more stable now than in 2013

GMT 16:55 2016 Thursday ,09 June

Arab Today, arab today RBI seen more stable now than in 2013

RBI seen more stable now than in 2013
Mumbai/London - Arab Today

The reappointment, or not, of India’s central bank head Raghuram Rajan has caused enough of a stir to be known locally as “Rexit,” a play on Britain’s EU referendum, reflecting the esteem in which the governor is held at home and abroad.
Were Rajan to leave when his tenure ends in September, Indian markets are expected to fall to reflect his standing, but some foreign fund managers are of the view that, even if he does go, it would not be the end of the world.
The main reason is that Rajan would leave behind policies that have altered the way the central bank works, namely the adoption of an inflation target and plans to create a monetary policy committee to set interest rates.
Both reduce the discretion the Reserve Bank of India (RBI) governor has historically enjoyed in setting policy, making the institution more consensus-based and bringing it closer into line with other big central banks like the US Federal Reserve.
“The short answer is that investors, especially fixed income investors, will not be happy if he leaves, and it will surely trigger some sales,” said Kieran Curtis, investment director of emerging markets debt at Standard Life Investments in London.
“I think there is a more nuanced view, though, and unless he is replaced by a polar opposite character it may not matter that much,” he added.
Rajan declined to comment on speculation over his future, telling reporters on Tuesday: “You will know when there is news.” He left rates unchanged, as was widely expected, after the latest policy review.
A two-year extension at the helm of the RBI still looks a real possibility.
Reuters reported last week that, with Prime Minister Narendra Modi behind Rajan, the central bank chief was more likely to be reappointed, despite considerable opposition to him within the ruling Bharatiya Janata Party (BJP).
Rajan may not want the job, and, when a regional newspaper cited sources close to the governor saying he could walk away, markets were briefly spooked.
Rajan’s appointment in September 2013, as India faced its worst currency crisis in over two decades, and the election of Modi in May 2014, have helped turn India into an emerging market darling at a time when countries like Brazil and South Africa are struggling.
India has attracted $62 billion in foreign portfolio investments since Rajan’s appointment, including a yearly record of $42 billion in 2014, and the proportion of overseas ownership in debt and equity markets has hit record highs.
Rajan moved quickly to calm markets by raising short-term interest rates and pushing hard to shore up foreign exchange reserves, which hit a record $363 billion in recent weeks before dipping somewhat.

Source: Arab News

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