Urjit Patel, the inflation-fighter, cast in the same mould as Rajan

Urjit Patel, the 24th Governor of the Reserve Bank of India, is widely seen as cast in the same mould as his predecessor Raghuram Rajan when it comes to tackling inflation, purging the banking system of bad loans, and tamping down exchange rate volatility.

Like Rajan, who worked with the government over the last three years to create a platform for macroeconomic and institutional stability, Patel too is expected to do more of what the central bank has already been doing, say market experts, signalling continuity in policies.

The new Governor takes charge at a time when there are imminent sources of market volatility like the threat of Brexit (Britain’s withdrawal from the European Union), and Foreign Currency Non-Resident (B) deposit outflows of up to $24 billion that could happen in the September-November period.

Further, the new Governor is likely to be guided by the monetary policy committee (MPC) that will set policy rates in the Fourth Bi-Monthly Policy Statement, due on October 4.

Thomas Rookmaaker, Director, Asia-Pacific Sovereigns Group, Fitch Rating, said, “As a rating agency, we look at actual policies rather than personalities. The fact that Patel has served as Deputy Governor in the past three years, suggests continuation of the current policy direction in the years ahead.

“Patel was part of the team at the RBI that set in motion significant policy changes to deal with both high inflation and weak bawnk balance sheets, including the setting up of new policy frameworks. He seems well-positioned to further institutionalise these policy changes in the period ahead.”

Economists at Goldman Sachs, in a report, expect the RBI to continue focus on bringing down inflation, and maintained their view that policy rates will be kept on hold for the remainder of 2016.

“In our view, Patel is likely to maintain similar views as Rajan in inflation targeting, banking sector reforms, overall liquidity, and exchange rate policy areas,” they said.

While Patel in his current role has not been directly involved in the asset quality review process of bank balance sheets, Goldman Sachs economists see him continuing the process of cleaning up bank balance sheets and adhering to the March 2017 deadline set by Rajan.

Edelweiss Securities, in a report said, “Once the MPC is set up, one needs to monitor two things. First, how the MPC reads the consumer price index (CPI) mandate of 2-6 per cent range and will there be any change in the glide path to the 4 per cent target by January 2018.

“Second, the committee’s stance on the 1.5-2.0 per cent real rates objective, which the central bank has been following over the past three years. Both these will be crucial in assessing the future scope of monetary easing. For now, we continue to maintain our expectation of another 50 basis points easing in balance FY17.”

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