 "Patel gets down to business on Day One")
Urjit Patel on Tuesday formally took over as the 24th governor of the Reserve Bank of India (RBI) from Raghuram Rajan, after signing the ceremonial scroll of the central bank's board.
Patel's appointment was effective September 4, but the scroll signing ceremony had to be delayed till Tuesday as the central bank was closed on Sunday and Monday.
Upon Patel's elevation, the portfolios of the three deputy governors were rejigged. Most of the departments that Patel used to handle, including the critical monetary policy department, forecasting and modelling unit, department of economic policy & research, and financial markets regulation department, market intelligence, were handed over to R Gandhi. S S Mundra and N S Vishwanathan also got charge of three additional departments.
RBI on Tuesday announced Rs 10,000-crore bond purchase from the secondary market. Patel was the key architect of a new liquidity framework that promises to keep banking sector liquidity in neutral mode.
However, the new governor didn't meet the press. RBI emailed a photo of the signing ceremony, where a souvenir with rupee sign could be seen, which presumably was given by the former governor to the new one.
Patel moved to the corner room at the 18th floor in the morning and according to sources, soon after assuming charge, Patel went about business. He was to attend a meeting of senior executives but the meeting had to be postponed for some reasons. But there was no special ceremony at the central bank. However, photographers standing outside the RBI premises to catch a glimpse of Patel or Rajan managed to notice Patel's mother entering the RBI premises in a car for her son's big day.
This is in stark contrast to Raghuram Rajan's first day in office where the governor announced a slew of measures to assuage the market that the central bank was on top of things and there should be no reason to panic. Rupee stabilised after those announcements and strengthened considerably in the coming days.
However, the situation now is also different. Patel takes over at a time when the markets are calm, rupee is stable, bond yields low and foreign exchange reserves aplenty.
Rupee closed at 66.52 a dollar, the 10-year benchmark bond yield closed at 7.096 per cent on Tuesday, from their Friday's close of 66.83 a dollar and 7.118 per cent level.
However, the apparent calm in the market could be misleading as the new governor may have to be more vocal in his communication with the market.
The first challenge for the new governor will come up soon when about $26 billion of foreign currency non resident (FCNR) deposits come up for maturity between this month and November. The central bank has already guided that the resultant dollar outflow could create temporary liquidity crisis in the market. Given that the central bank has build up a formidable reserve and solid long position at the forwards market, the redemption per se won't be a problem. But there could be a short term blip, which the new governor should talk down in the market.
Besides, Patel, the architect behind the monetary policy committee that would target inflation at 4 per cent with a band of 2 per cent, would have to be vigilant about the rising inflation. Led by food prices and rising oil prices, inflation for July crossed 6 per cent, much higher than RBI's target range. But the central bank expects the August number to be soft and in any case, the target of bringing down inflation to 5 per cent by March 2017 should be achievable. However, if inflation continues to remain high, it would seriously jeopardise RBI's efforts to contain inflation within the target range.
Also, Rajan was criticised by some for not reducing rates enough. The new governor may have to cut rates sharply to let growth take place in a broad-based manner. Certainly, this is what the government and the industries want. But Patel's appointment means continuation of RBI's hawkish stance. It would be interesting to see how the new governor balances industry expectations with his target of containing inflation. Besides, the new governor will have to continue with banks' asset quality review even as the gross bad debt has neared Rs 6 lakh crore at the end of fiscal 2015-16.
Patel's appointment was effective September 4, but the scroll signing ceremony had to be delayed till Tuesday as the central bank was closed on Sunday and Monday.
Upon Patel's elevation, the portfolios of the three deputy governors were rejigged. Most of the departments that Patel used to handle, including the critical monetary policy department, forecasting and modelling unit, department of economic policy & research, and financial markets regulation department, market intelligence, were handed over to R Gandhi. S S Mundra and N S Vishwanathan also got charge of three additional departments.
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Therefore, the three members from the RBI in the six-member monetary policy committee would be RBI governor Patel, deputy governor R. Gandhi and executive director Michael Patra, whose inclusion in MPC was earlier announced by RBI. The rest three members in the committee will be government appointed.
RBI on Tuesday announced Rs 10,000-crore bond purchase from the secondary market. Patel was the key architect of a new liquidity framework that promises to keep banking sector liquidity in neutral mode.
However, the new governor didn't meet the press. RBI emailed a photo of the signing ceremony, where a souvenir with rupee sign could be seen, which presumably was given by the former governor to the new one.
Patel moved to the corner room at the 18th floor in the morning and according to sources, soon after assuming charge, Patel went about business. He was to attend a meeting of senior executives but the meeting had to be postponed for some reasons. But there was no special ceremony at the central bank. However, photographers standing outside the RBI premises to catch a glimpse of Patel or Rajan managed to notice Patel's mother entering the RBI premises in a car for her son's big day.
This is in stark contrast to Raghuram Rajan's first day in office where the governor announced a slew of measures to assuage the market that the central bank was on top of things and there should be no reason to panic. Rupee stabilised after those announcements and strengthened considerably in the coming days.
However, the situation now is also different. Patel takes over at a time when the markets are calm, rupee is stable, bond yields low and foreign exchange reserves aplenty.
Rupee closed at 66.52 a dollar, the 10-year benchmark bond yield closed at 7.096 per cent on Tuesday, from their Friday's close of 66.83 a dollar and 7.118 per cent level.
However, the apparent calm in the market could be misleading as the new governor may have to be more vocal in his communication with the market.
The first challenge for the new governor will come up soon when about $26 billion of foreign currency non resident (FCNR) deposits come up for maturity between this month and November. The central bank has already guided that the resultant dollar outflow could create temporary liquidity crisis in the market. Given that the central bank has build up a formidable reserve and solid long position at the forwards market, the redemption per se won't be a problem. But there could be a short term blip, which the new governor should talk down in the market.
Besides, Patel, the architect behind the monetary policy committee that would target inflation at 4 per cent with a band of 2 per cent, would have to be vigilant about the rising inflation. Led by food prices and rising oil prices, inflation for July crossed 6 per cent, much higher than RBI's target range. But the central bank expects the August number to be soft and in any case, the target of bringing down inflation to 5 per cent by March 2017 should be achievable. However, if inflation continues to remain high, it would seriously jeopardise RBI's efforts to contain inflation within the target range.
Also, Rajan was criticised by some for not reducing rates enough. The new governor may have to cut rates sharply to let growth take place in a broad-based manner. Certainly, this is what the government and the industries want. But Patel's appointment means continuation of RBI's hawkish stance. It would be interesting to see how the new governor balances industry expectations with his target of containing inflation. Besides, the new governor will have to continue with banks' asset quality review even as the gross bad debt has neared Rs 6 lakh crore at the end of fiscal 2015-16.