RBI's inflation warrior Urjit Patel to replace Rajan as governor

Hyderabad: Bringing curtails to months-long speculation over the successor of high profile rock star Raghuram Rajan at the Reserve Bank of India, the government on Saturday announced an insider candidate and RBI deputy governor, Urjit Patel, as the next head of the central bank.

Dr Patel will be the 24th governor of RBI. He will assume office on September 4 — the day when Dr Rajan demits office. With the selection of Dr Patel to the top position, the Modi government appears to have hinted at its preference for continuity rather than drastic changes.

Dr Patel, who is considered as a trust lieutenant of Dr Rajan, represents the same school of thought that the rock star economist believes in.

In fact, Dr Patel, 52, was the head of the panel, which recommended inflation-targeting by the RBI and this, perhaps, could appear to be bad news for those lobbying for lower interest rates — including corporate houses and the likes of BJP MP Dr Subramanian Swamy, who attacked Dr Rajan for his inflation focussed approach.

Patel, who has been overseeing the monetary policy department at RBI under Rajan and has been known as his ‘inflation-warrior’ will have a three-year term.
The selection of an inflation-focused RBI governor appeared evident after Prime Minister Narendra Modi in his Independence Day speech vowed to keep inflation low.

The monetary policy under Dr Patel could also may not much different from Dr Rajan’s days as it was Dr Patel who was heading the monetary policy department as the deputy governor.

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His appointment could also be music to the ears of foreign investors as the continuation of stable price regime would keep the Indian bond markets attractive for big foreign investors.

According to Kotak Mahindra Asset Management Company MD, Nilesh Shah, “Dr Patel’s appointment provides continuity to the monetary policy making especially related to inflation targeting. It reassures both debt and equity market for continuity in policy making at the RBI. Market participants will be keenly looking forward to next credit policy to hear governor’s view point on macro-economic environment and agenda for the future.”

Ajay Bodke, CEO and Chief Portfolio Manager,  PMS, Prabhudas Lilladher, feels that markets would strongly cheer the appointment. “One of the most seminal achievements of Dr Rajan as RBI governor was the signing of monetary policy agreement between the government and RBI for ‘flexible inflation targeting” which was based on the report of the panel headed by Dr Patel. Dr Patel’s path-breaking report has helped India join the league of developed nations where adoption of flexible inflation targeting has helped anchor inflationary expectations and brought about a structural control over inflation. Markets would strongly cheer the appointment,” Mr Bodke explained.

Meanwhile, Patel’s appointment appeared to have support of BJP MP Subramanian Swamy who had launched a series of attacks against the outgoing Governor Raghuram Rajan.

In a string of retweets and replies to his Twitter followers, Swamy said it will be utter “idiotic” to think he will attack Patel because he was born in Kenya. Swamy, who has been extremely critical of Rajan’s policy of not lowering interest rate to check inflation, hoped that Patel will not be as “hawkish”.

When one of his followers criticised Patel for being a Kenyan national, Swamy replied: “He is not a Kenyan citizen, but was. R3 was born Indian and chose to continue his US green card even though in India from 2007.”