 "Markets take Rajan's impending departure in their stride")
The equity market and the rupee recovered sharply from their opening lows as investors bet on institutions, rather than personalities, to gauge India’s attractiveness as an investment destination. While the rupee is still lower than its previous close, equity markets are trading higher.
The rupee had opened sharply weaker on Monday against the US dollar, signaling markets’ displeasure over Reserve Bank of India governor Raghuram Rajan's decision to move back to academia on finishing his term at the central bank in September.
The local currency opened at 67.68 against the greenback, despite dollar weakening against major currencies globally. At 11.25, the rupee was trading at 67.42 a dollar, recovering some of its strength on possible intervention from RBI once rupee touched 67.69 level in opening trade. The currency had touched an all-time low of 68.85 on August 28, 2013.
RBI intervenes through a clutch of nationalised banks. Taking the cue, large corporate groups who earn dollars started selling dollars. “Nationalised banks were heavy dollar sellers in the morning, after that some large exporters have taken over and are supplying dollars,” said a senior currency dealer with a foreign bank.
Monday’s rupee movement was largely expected even as the situation will correct in the coming days, say currency dealers.
Rajan’s departure won’t affect India’s ratings much either, Fitch Ratings said in a statement. “From a ratings perspective, policies are more important than personalities. In the past years, significant policy changes have been set in motion in India, not in the least by governor Rajan.… the next governor seems to inherit a solid basis in this regard, providing him or her a good opportunity to continue to pursue relatively low consumer price inflation (CPI) and strengthened bank balance sheets,” said Thomas Rookmaaker, Director in Fitch's Asia-Pacific Sovereigns Group, in a statement.
The exchange rate would have fallen even more had equity markets reacted negatively to the Rajan news. However, after opening in the red, the Sensex did a smart recovery, led by IT stocks. At 11.25 pm, Sensex was trading at 26,689.33 points, up 63.42 points, or 0.24%. The benchmark equity index of BSE had opened at 26,497.11 points and rose as much as 26,750.23 points in the day.
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The dollar index that measures the greenback’s strength against major currencies, was down 0.59% at 93.59. Most of the Asian currencies strengthened against the dollar.
Meanwhile, the yield on 10-year government bonds was at 7.53%. It had closed at 7.50% on Friday.
On Saturday, Rajan announced his intention to return to academia after completing his three-year stint at the Reserve Bank of India. He is slated to go back to Business School at University of Chicago.
After about a one-year stint as chief economic advisor with the government, Rajan came to RBI in August 2013 as designate (Officer on Special Duty) and became the governor in September 2013.
Rajan came to the RBI amid volatility in global markets due to the US Federal Reserve’s announced intent to end easy money policy. His top priority at RBI was to curb excess volatility on foreign exchange market and halt the slide in rupee value.