Shaktikanta Das was appointed as the new Reserve Bank of India (RBI) Governor, a day after the resignation of Dr. Urjit Patel. Shaktikanta Das is a former Economic Affairs Secretary and a member of the 15th Finance Commission and has worked closely with the central bank. He is currently a member of the Finance Commission of India, and the government’s representative at the Group of 20 summits.
The appointment of Shaktikanta Das will calm the markets, as markets are expecting that the new governor will continue with the current RBI policy to improve the system liquidity and ease the liquidity freeze in the credit markets while intervening in the fx markets to prevent excess INR volatility.
The MPC will decide on the policy stance in its bi-monthly policy review meet. The new governor will also have to work closely with the government and judge whether the RBI can meet its demands and still keep the central bank independence intact.
Urjit Patel Resignation
The resignation, apart from stoking market volatility, will unnerve foreign investors, as they see central bank independence as a primary factor for safeguarding their investments. The government must quickly act to restore market faith in the central bank by appointing a neutral and good person as governor and removing all demands that led to the resignation of the governor.
Reserve Bank of India Governor Dr.Urjit Patel has resigned. The resignation of Dr.Urjit Patel will create high market volatility, as markets are already volatile due to the upcoming state elections results, risk aversion in global markets (Click here to read our Global Bond Market Analysis ), OPEC oil output cut by 800,000 barrels per day (bpd) starting January 2019 and simultaneous non-OPEC members output cut by 400,000 bpd. Together, the output cut amounts to 1.2 million bpd, which will help crude prices to rise in the short term, which will put upward pressure on the CAD (Read our report on India Q2FY19 CAD)
INR will depreciate, government bond yields will rise and equity market will fall if state election results go sharply against the current government. Stability will emerge once government appoints the successor to Dr.Urjit Patel and calm market fears
Statement by Governor
On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honour to serve in the Reserve Bank of India in various capacities over the years. The support and hard work of RBI staff, officers and management has been the proximate driver of the Bank’s considerable accomplishments in recent years. I take this opportunity to express gratitude to my colleagues and Directors of the RBI Central Board, and wish them all the best for the future.