“I will, of course, always be available to serve my country when needed,” he added.you that I will be returning to academia when my term as governor ends on September 4, 2016,” he said.
“I will, of course, always be available to serve my country when needed,” he added. “I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished.”
Stating that he will be returning to the US university, from where he is on a sabbatical, Rajan listed his unfinished agenda as seeing a monetary policy panel in place to broadly guide the central bank, and a clean-up of banks’ balance sheets.
At India’s central bank, the former International Monetary Fund chief economist not only oversaw a revolution in the conduct of monetary policy but also pushed for structural reforms and commented on fiscal policy, often drawing the ire of lawmakers in the process. Rajan, along with Bank of England’s Mark Carney, is one of the two ‘rock star’ central bankers of this generation. At the Jackson Hole symposium in 2005, he famously warned of excessive and growing imbalances in the financial system that manifested in the crisis of 2008. But for now, analysts are scrambling to get a handle on what the governor’s departure means and how markets are likely to be affected. “This is a negative surprise for India,” said Tirthankar Patnaik, a Mumbai-based economist at Mizuho Bank Ltd. “In India’s impending macro scenario, Rajan’s presence would have been really, really important. Without him, things are likely to be much more difficult.” The uncertainty over Rajan’s future has hung over the markets for weeks. When reports of Rajan’s desire to leave the post emerged on June 1, the rupee and bonds fell. The topic of his reappointment came up repeatedly at a conference in Singapore, where “investors unequivocally wanted Governor Rajan to continue,” according to a Deutsche Bank AG report last month.
The timing is “certainly bad” for India due to uncertainties over the monsoon and Brexit on June 23, according to Rupa Rege Nitsure, group chief economist at L&T Finance Holdings.
“There will be some nervousness initially but it may not last for very long,” Nitsure said of the market reaction. “Whom they select as the next governor will have a deeper impact on market sentiment.”
Accolades for Rajan poured in on on June 18.Lawrence Summers, a former U.S. treasury secretary, called Rajan “one of the few central bank governors who has changed the regime in a major country.” State Bank of India Chairman Arundhati Bhattacharya called Rajan “a person of very high caliber, who has built ably on the reputation of our central bank and given it a very large measure of credibility.” Mahindra & Mahindra Ltd. Chairman Anand Mahindra, said: “In my travels around the world and encounters with leading overseas businessmen it became clear that during his tenure he greatly enhanced the credibility and bankability of India. I trust that a successor will be found who will continue and enhance the great work done by Governor Rajan.” The Associated Chambers of Commerce & Industry of India,Secretary General D.S. Rawat said: “Dr. Raghuram Rajan leaving the RBI at a time when a tumultuous global economy poses several risks to India along with the banks grappling with an unprecedented challenge of mounting non-performing assets is quite unfortunate.” Deepali Bhargava, economist at Credit Suisse AG said,”We think that the governor’s departure is a negative for the currency.”
According to Bhanu Baweja,strategist at UBS AG,”Amid intense market focus on short-term risks such as emerging market outflows and a Fed tightening cycle, we believe Rajan always took a longer term view. We’ve been in agreement with Rajan’s view that low inflation, far from being negative for growth, is precisely what is needed to finance long-term growth by incentivizing savers to move from gold and into financial instruments.”
Pranjul Bhandari, chief India economist at HSBC Bank said, “Over the last three years, Rajan has introduced many changes at RBI and alongside the macro fundamentals of the country have improved significantly.”
According to Mallika Sachdeva, strategist at Deutsche Bank, “Rajan’s future was the subject of most discussions. A minority believed that ‘where there’s smoke, there’s fire’ and the risk of his departure was real, while others felt better economic sense would prevail. Even without the Rajan risk though, many noted that the fixed-income story was getting shakier, with the recent turn higher in inflation, further risks from oil and the Pay Commission implementation, and a still large off-index position on bonds by offshore real-money.”
Siddhartha Sanyal, chief India economist at Barclays Bank said, “It is beyond doubt that Governor Rajan has been a strong face for India during the country’s journey in the last three years from one of the ‘fragile five’ economies to arguably the most preferred emerging market investment destination today.”
Rajan took charge of the central bank when the rupee was at a record low and the inflation rate was among Asia’s fastest. After tight monetary policy and a crash in global oil prices helped damp price pressures, he began cutting borrowing costs last year and brought the benchmark rate to a five-year low of 6.5 percent. He’s now in the midst of a $120 billion clean up of stressed assets in the banking system and helping to establish a new monetary policy committee.
In April,a stock brokerage listed four potential replacements for Rajan: Urjit Patel, Rajan’s deputy at the Reserve Bank of India; Bhattacharya, who heads the nation’s largest government-controlled lender; Shaktikanta Das, economic affairs secretary in the Finance Ministry; U.K. Sinha, chairman of the Securities & Exchange Board of India.