Raghuram Rajan to be next RBI governor

Raghuram Rajan was named the next governor
of the Reserve Bank of India (RBI) as the
nation contends with the rupee near a record
low, one of the world’s fastest inflation rates
and the weakest economic growth in a decade.
Rajan, 50, the top adviser in the finance
ministry since 2012, will succeed incumbent
Duvvuri Subbarao for a period of three years,
the government said in a statement in New
Delhi on Tuesday. Subbarao’s term at RBI is
due to expire 4 September. Rajan told
reporters that there is no magic wand to pull
the country instantly out of challenges being
faced by the economy. “These are challenging
times for the Indian economy... The
government and the RBI are working together
to address these challenges. We don’t have a
magic wand to make the problems disappear
instantaneously. But I have absolutely no
doubt, we will deal with them,” the Press Trust
of India quoted him as saying.
Rajan, who accurately warned central bankers
in 2005 of a potential financial crisis, faces a
currency that touched a record low today and
which has slumped about 13% against the
dollar in the past six months. RBI increased
two interest rates last month and capped daily
cash injections into the banking system,
seeking to stabilize the rupee and reduce risks
to economic stability from the depreciation.
“The immediate challenge would be to restore
credibility in stabilizing the exchange rate and
fighting inflation,” said Rahul Bajoria, an
economist at Barclays Plc in Singapore. “He
brings with him a huge wealth of knowledge
and a global experience.”
The rupee pared losses as Rajan’s appointment
was reported and was 0.9% weaker at 61.3950
per dollar at 3:52 p.m. in Mumbai. The S&P
BSE Sensex index of stocks slid 2.3%. The yield
on the 7.16% government bond due May 2023
rose to 8.21% from 8.20% on Monday.
Record Deficit
India’s record current-account deficit has
weighed on the rupee, as have capital outflows
from emerging markets sparked by concern
that the Federal Reserve could reduce
monetary stimulus as the US economy
strengthens. Rajan is a former chief economist
at the International Monetary Fund and has a
doctorate from the Massachusetts Institute of
Technology. Finance Minister Palaniappan
Chidambaram and Rajan have helped lead a
government push since September to revive
investment, woo foreign inflows and avert a
credit-rating downgrade. India’s gross
domestic product growth slowed to a decade-
low 5 percent last fiscal year, the slowest since
2003.
The rupee drop threatens to stoke inflation,
with the consumer-price index climbing almost
10 percent in June from a year earlier. That’s
the second-fastest in the Group of 20 major
economies, according to data compiled by
Bloomberg.