By Rupam Jain and Rafael Nam
NEW DELHI/MUMBAI (Reuters) - India's government promoted Urjit Patel, a deputy governor in charge of monetary policy at the Reserve Bank of India, to serve as governor for a three-year term, endorsing the central bank's reformist inflation-fighting agenda.
Patel will replace Raghuram Rajan, a former International Monetary Fund chief economist popular with investors who stunned financial markets in June by announcing he would step down and return to academia after a single stint at the RBI.
As well as a guarantee of monetary policy continuity Patel, 52, offers a lower political profile.
Rajan faced a backlash from hard-right elements in Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) for the social criticism he sometimes resorted to in his public statements. Patel is little known on the conference circuit and has refrained from making major policy speeches while deputy governor.
An aide to Modi praised Patel as "young and dynamic" while having a wide international policy perspective..
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As deputy governor, he headed a panel that recommended landmark changes to monetary policy in India, including a switch to inflation-targeting and the creation of a committee to set interest rates.
Modi backed that inflation target of 4 percent, within a range of 2 to 6 percent, in his annual Independence Day speech on Monday, saying his government had brought down consumer price growth from double digits under the last government.
"Dr Patel's appointment as the RBI Governor would give a sense of policy continuity," said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings in Mumbai.
"It will assure international investors that the flexible inflation targeting framework will be taken to its logical end, and it's absolutely essential for India's monetary policy credibility."
Patel, who has a doctorate from Yale, will take over on Sept. 4
He was reappointed in January for another three years as deputy governor in charge of monetary policy, a department he has run since 2013 after first being appointed by a Congress-led government.
NOT SUCH A CONSENSUS-BUILDER?
Seen as a close lieutenant to Rajan, Patel will now get to implement the policies he helped shape and that have substantially changed the role of the RBI Governor.
The government is soon expected to announce the lineup of the six-member Monetary Policy Committee to decide on interest rates. It will be made up of Patel and two other RBI officials, along with three members appointed by the government.
That may require a consensus-builder, in the mould of central banks in developed markets such as the U.S. Federal Reserve. Some within the RBI describe Patel as a moody man who avoids social interaction and huddles only with close aides.
"He has an abrasive personality," said one RBI official who has worked with him. "At a time when RBI policy will be decided by a monetary policy committee, good communication skills are a necessity which is lacking in him."
Rajan, who succeeded in halving the inflation rate from the double-digit levels prevailing when he took over, also persuaded the government to adopt inflation targeting, another policy endorsed by Patel.
The new governor takes over at a time when inflation has risen above that range. Consumer inflation accelerated to 6.07 percent in July, the fourth consecutive month above the RBI's near-term target of 5 percent.
Aside from controlling inflation, the new governor will have to follow through on efforts to clean up banks' bad loans so that they can again support the investments needed if India is to keep its place as one of the world's fastest growing economies.
(Additional reporting by Manoj Kumar, Rajesh Kumar Singh, Neha Dasgupta in NEW DELHI; and Suvashree Dey Choudhury, Abhirup Roy and Rajendra Jadhav in MUMBAI; Editing by Douglas Busvine and John Stonestreet)