The 'insider' on monetary policy: Meet Michael Patra, the new RBI Dy Guv

Patra wrote the monetary policy framework, which targets flexible inflation targeting, and is the basis of the six-member MPC in which Patra is a member

The appointment of Michael Patra, 59, as deputy governor for three years at the Reserve Bank of India (RBI) on January 14 was well anticipated and is the right decision by the government. 

His appointment also aims to resolve a few issues within the central bank and for the government as well. 

To start with, there is perhaps no better person than Patra at this juncture to handle the monetary policy department with the same attention to details as is warranted. Unlike outsiders, Patra is not a theoretician, but a scholar-practitioner of monetary policy matters, something the country needs desperately at a time when there are signs of stagflation with the growth falling nearly a decade low of below 5 per cent, and inflation rising to a five year high of about 7.5 per cent level. 

The Deputy Governor post was made vacant by the departure of Viral Acharya in July last year, and by practice it is reserved for reputed economists. Patra is a career RBI officer, but the position was advertised globally and he met all the criteria. So it is not an internal promotion, but something that Patra earned on a standalone basis. Still, Patra is the first RBI officer since S S Tarapore in 1992 to get the position. It was a long wait for the central bank, and the government took nearly six months to finalise the name. 

One of Patra's biggest achievement is also something that people do not associate him with readily. Patra wrote the monetary policy framework, which targets flexible inflation targeting, and is the basis of the six-member monetary policy committee (MPC) in which Patra is a member. Then deputy governor Urjit Patel gave Patra, then an executive director at the Monetary Policy Department, the responsibility to give the framework its shape. The fact that the MPC has held up well in the last few years is a testimony to Patra’s fine understanding of monetary policy matters. 

Patra keeps a low media profile outside RBI, but is known among policy experts as a seasoned researcher and a fine economist, whose core area of expertise lies in monetary policy. He has been associated with the department since 2006 except for a deputation at the International Monetary Fund (IMF) between December 2008 to June 2012. There, at the peak of the global credit crisis and Euro area sovereign debt crisis, Patra was advising the executive board of the IMF on economic matters. 

Patra’s recent observations in the MPC are interesting. He was perhaps more hawkish than then governor Urjit Patel and deputy governor Viral Acharya and steadfastly advised against cutting rates. He turned dovish and advocated rate cuts when Shaktikanta Das became Governor. 

In the February 2019 policy, Patra voted for a rate cut as well as a change in stance from "calibrated tightening" to "neutral", as “dark clouds seem to be gathering over the horizon,” due to global developments. 

But about two months back, in December 2018, Patra was worried about inflation projected to rise above 4 per cent over the 12-month ahead horizon. 

“It is apposite to persevere with the stance of calibrated tightening to head off inflation pressures from potentially corroding the foundations of the growth path that is evolving over the medium-term,” he had warned. 

Patra’s flip-flop was surprising to many, but Patra in private conversations explained his view changed with the change in numbers and situation in hand. That ‘hawkish’ and ‘dovish’ are just words that central bankers cannot afford to cling to. 

But if one reads the history of such committees, Patra’s behavior is not very uncommon vis-à-vis his counterparts in US Federal Open Market Committee (FOMC). 

Economist Alan Blinder noted that in such committees, it is always the chairman who sets the agenda and gets things done his way. 

“The distinction between individual and group decision making, while clean in theory, can be fuzzy in practice. Many central bank policy boards do not reach decisions by literal majority vote. Committees have chairmen, who may dominate the proceedings,” Blinder’s 2007 paper 'Monetary Policy by Committee: Why and How' says. 

Patra being the deputy governor also addresses the antipathy of the RBI staff in seeing an outsider as their boss. Patra is one of the most loved senior officials in the RBI. Patra, as is narrated by his colleagues, is just a call away from getting himself involved in any research done in the RBI. He also stands by his team, and the staff feel at ease talking to him, especially because Patra is ready to change his opinion at the sound reasoning of even the junior-most staff. 

Another issue that gets sorted on its own is that Patra is unlikely to stir a hornet’s nest by embarrassing the government from the public forum, unlike economists brought from outside. While the merit and demerit of speaking out can be debated, it helps keeping the relationship cordial between the government and the RBI. 

Patra received professional training at the IMF Institute on Financial Programming and Policy and at the Centre for Central Banking Studies, Bank of England. He is also a Fellow of the Harvard University where he undertook post-doctoral research in the area of financial stability. He has a PhD in Economics from the Indian Institute of Technology, Mumbai. His PhD thesis was entitled "The Role of Invisibles in India's Balance of Payments: A Structural Approach". 

He has published papers on inflation, monetary policy, international trade and finance, including exchange rates and the balance of payments.