Reserve Bank of India (RBI) deputy governor Urjit Patel will take over as the central bank’s new head, the government announced on Saturday, potentially signalling its intent to continue with the reforms initiated by outgoing governor Raghuram Rajan.
An elated India Inc hoped as much, saying that Patel, 52, was the right man to take over from Rajan, who stunned financial markets in June by announcing he would step down in September and return to academia after a single three-year term at the RBI.
“The Appointments Committee of Cabinet has approved the appointment of Dr Urjit R Patel as governor, Reserve Bank of India for a period of three years,” the government said in a statement, ending more than two months of speculation over Rajan’s successor.
Patel — who once compared RBI to an owl which is “vigilant when others are resting” — headed a panel that recommended landmark changes to monetary policy in India, including a switch to inflation-targeting and the creation of a panel to set interest rates.
“Thank you everyone for your warm wishes! I will give my best to live up to the expectation of people,” a tweet from an account believed to be of Patel said.
The account was not verified though Union finance minister Arun Jaitley sent out a congratulatory message tagging the Twitter handle.
“I’m sure he will successfully lead the Reserve Bank & contribute to India’s economic development,” Jaitley said.
Patel will assume office as the 24th RBI governor on September 4, the day Rajan’s term ends.
As India’s top banker, Patel’s primary duty will be to keep prices stable and ensure credit flow to companies and individuals. He will lead a team of about 17,000 and draw a salary of about Rs 200,000 per month besides allowances and perks.
The RBI regulates banks, prints money and prevents volatility in the foreign exchange market. It is also the government’s banker and lender of last resort.
Patel, who has been an RBI deputy governor since January 2013, is a PhD from Yale University and has worked at the International Monetary Fund (IMF), The Brookings Institution at Washington and the Massachusetts-based Boston Consulting Group.
One of the most politically significant tweets came from BJP leader Subramanian Swamy who had relentlessly targeted Rajan and had even questioned the banker’s patriotism.
But the new RBI chief appeared to have Swamy’s support, as the Rajya Sabha MP said it will be “idiotic” to think he will attack Patel because he was born in Kenya.
Swamy, who was once ticked off by Prime Minister Narendra Modi for this tirade against Rajan, also hoped Patel will be not as “hawkish” as the outgoing governor, who had repeated face-offs with the political establishment for ignoring calls to cut interest rates.
Opposition parties led by the Congress were quick to point out how Rajan was pilloried by “establishment hounds” for his foreign credentials.
“Different strokes for different folks,” senior Congress leader Manish Tewari said.
Patel’s credentials as an inflation tamer might be tested soon as slowing investments in the economy coincide with a rebound in global oil and food prices. Additionally, how he follows up on Rajan’s moves to clean up bad debt in the banking sector will also be closely watched.
Patel was a key man in framing the monetary-policy framework that the central bank has adopted, making inflation taming the central bank’s primary priority and shifting the focus away from wholesale prices.
The new framework will remove speculation in RBI’s interest rate decisions.
The RBI and the government have set a new retail inflation target of 4% for the next five years with an upper tolerance level of 6% and lower limit of 2%.
High inflation hurts people’s buying power, while low levels can indicate poor demand and weak economic activity.
Such an approach has become standard practice in many matured economies, such as Britain, where the central bank sets interest rates according to an inflation target set by the government.
Patel will be the first governor to oversee interest rate decisions by a monetary policy committee (MPC), a six-member panel chaired by the RBI governor to decide on interest rates.
The governor will not enjoy a veto power, but will cast vote in case of a tie.
The decision of the committee — three each nominated by the government and the central bank — will be binding on the central bank.
Currently, the RBI’s Monetary Policy Department (MPD) assists the governor in formulating the monetary policy. Views of key stakeholders in the economy such as the finance ministry and advice of the Technical Advisory Committee (TAC) contribute to decisions on the repo rate—the rate at which the central bank lends to banks.
The governor can override decisions.