RBI’s Patel seen taking charge on Tuesday
Urjit Patel, the new Governor of RBI who has maintained a contrasting low-profile to outspoken Raghuram Rajan, has his immediate task cut out – finishing the ‘unfinished agenda’ of his predecessor on completing ‘deep surgery’ of banks and winning the war on inflation.
Incidentally, it was Dr. Patel who scripted a new framework for fighting price rise, which earned him the informal title of ‘inflation warrior.’ However, it is the ‘deep surgery’ ordered by Dr. Rajan to clean the balance sheets of banks that may pose greater challenges for Dr. Patel, as a number of banks, corporates and others have been lobbying hard against what they call the ‘unwarranted urgency’ shown by the RBI in this regard at the cost of hurting investments.
The 52-year-old Dr. Patel’s appointment as the 24th RBI Governor is effective Sunday, though his first working day could be September 6, due to Monday being a holiday for Ganesh Chaturthi.
A number of corporate leaders and bankers who have previously worked with Dr. Patel said he was expected to show “much better understanding” of the problems companies and banks are facing due to the central bank’s AQR (Asset Quality Review) directive.
Some are even hopeful that the AQR may actually see some change, though Dr. Rajan had said that the process should be completed by March 2017.
Baton passes
Manojit Saha writes:
As compared to September 2013, both domestic and external conditions are comparatively favourable. The rupee has stabilised though there could be a period of volatility once the foreign currency deposits (that were raised in 2013 to stabilise the rupee) start to flow out later this month. The outflows could be a ‘non-event’, Dr. Rajan had said and his belief is mainly due to the healthy foreign exchange reserves which are at $366.78 billion (as on August 26, 2016) as compared with $274.8 billion three years ago.
On the external front, worries over further interest rate increases by the U.S. Fed linger.
“We expect India to release data this month showing a current account surplus of around $4 billion (0.8 per cent of GDP) in Q2 2016, its first quarterly surplus in nine years,” Sonal Verma and Neha Saraf of Nomura Securities wrote in a note to clients. “We believe this swing in the current account balance will be driven by a sharp narrowing of the merchandise trade deficit.” Current account deficit for the last quarter of 2015-16 was $300 million, which was 0.1 per cent of the GDP.
“We continue to expect that RBI governor Patel will cut rates by 25 basis points…, with the rains already starting to douse agflation (agricultural inflation),” said Indranil Sengupta, India economist, Bank of America Merrill Lynch. “We expect August CPI inflation at 5.3 per cent.”
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