Indian central bank chief to step down in surprise move

Indian central bank chief to step down in surprise move

Indian central bank chief to step down in surprise move

Written by Staff Writer

19 Jun, 2016 | 12:43 pm

India’s central bank governor Raghuram Rajan, who has faced criticism from members of the ruling party for keeping interest rates too high, stunned officials on Saturday (June 18) by announcing he would step down when his term ends on September 04.

Rajan, a former chief economist at the IMF, has been popular with foreign investors for his efforts to tackle inflation, and won praises for rescuing India from its worst currency crisis in more than two decades after taking the helm in September 2013.

But in a nearly 900-world letter to Reserve Bank of India (RBI) staff he said he planned to return to academia, even as he noted two of his actions – the creation of a monetary policy committee to set interest rates and the clean-up of the banking sector – remained unfinished.

Although feted by investors, Rajan had faced strident criticism from right-wing members of Prime Minister Narendra Modi’s Bharatiya Janata Party, including parliament member Subramanian Swamy, who has waged a public campaign against his economic policies.

“I have no information that he was getting a second term. So if he says that he wants to go and he wants to save his self respect I have no problem. Let him pretend that he is giving up and going. But as long as he goes it is good,” said Subramanian Swamy, BJP lawmaker, in New Delhi.

Rajan, who is on leave from the University of Chicago, was appointed RBI Governor by the previous Congress government, where he had served as chief economic advisor to the finance minister for about a year before taking the helm of the central bank.

Rajan pushed for inflation targeting to tackle India’s history of volatile prices, which was then unveiled by the government last year.

He has also worked with the government on the creation of a monetary policy committee as well as the clean-up of heavily indebted banks – both of which may now have to be tackled by his successor.

Chief Executive Officer (CEO) Of Infosys, Vishal Sikka, hailed his contribution to the Indian economy.

“He has done a great job and we wish him very best. He was one of the visionaries. He saw the crisis in 2008 happen long before other people did and he had very deep insight into how the global economy works. I particularly excited to see what he will do next,” Sikka said in southern city of Bengaluru.

India’s opposition Congress Party was unsparing in its criticism on the government on the issue.

“It is sad. It is disappointing and it was expected. When you hound a self-respecting person, when you let loose people on him, obviously what else any self respecting person will do. He would say that I don’t want to continue and that is exactly what this government wanted,” said Manish Tewari, Congress spokesperson, in New Delhi.

Analysts said markets would likely react negatively on Monday (June 20), at a time when global factors such as Britain’s referendum on European Union membership are already weighing. Though many analysts had speculated Rajan could decide not to pursue a second term, few had foreseen it would come in the form of a letter to staff.

“I think this is going to be extremely harmful for the Indian economy. We are entering a period of quite a lot of instability – Britain exit vote is going to take place next week, there is oil price unstability and Indian monsoon have been delayed. So there is period of uncertainty ahead for global economy and the Indian economy and at a time like this for Raghuram Rajan not to be in position is going to be quite harmful for all of us,” said Meera Sanyal, a former banker, in Mumbai.

Finance Minister Arun Jaitley said in a tweet, “The Government appreciates the good work done by him and respects his decision. A decision on his successor would be announced shortly.”

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