Raghuram Rajan replaces Subbarao, takes charge as 23rd RBI governor

The Reserve Bank of India said Raghuram Rajan, the former chief economist at the International Monetary Fund, todat took oath as the 23rd governor of the central bank, replacing Duvvuri Subbarao.

Handing over the baton to Rajan, Subbarao said there is no person more capable than Rajan to lead the economy right now.

Rajan, who has most recently been an adviser at India’s finance ministry, will step into the eye of the storm roiling the country’s economy and become the new chief defender of a nose-diving rupee.

The currency has plunged nearly 20 percent since May as Asia’s third-largest economy confronts its worst crisis since 1990-1991.

The government’s piecemeal efforts to stabilise the rupee have done little to halt its steep slide. It has tumbled about 10 percent alone since Rajan’s appointment on 6 August.

Rajan has few policy options to revive the rupee but one thing he can do immediately is explain to financial markets more clearly what steps the central bank is taking and the thinking behind them. Investors and economists have complained that the bank has caused unnecessary confusion with some pronouncements.

Another pressing concern for markets is whether Rajan plans to dismantle any of the mishmash of measures, including a hike in short-term interest rates, the central bank has unveiled since mid-July to prop up the rupee.

Economists have expressed concern the steps could further damage the ailing economy.

Rajan, aware markets are scrutinising everything he says for clues about his intentions, has been circumspect in public, revealing little about whether he will pursue the policies of his predecessor, Duvvuri Subbarao, or change tack. Either way, economists expect him to hold fire with any major measures until after the US Federal Reserve meets on 17-18 Sept, when it might announce a pivotal shift in its stimulus programme.

Reuters