Business Other News 19 Jun 2016 Raghuram Rajan’s e ...

Raghuram Rajan’s exit as RBI governor comes at very worse time

Published Jun 19, 2016, 12:13 am IST
Updated Jun 19, 2016, 3:11 am IST
The announcement of his exit has come at worse time, when the country needs to brace for after-effects of a probable Brexit.
RBI Governor Raghuram Rajan. (Photo: PTI)
 RBI Governor Raghuram Rajan. (Photo: PTI)

Hyderabad: An intense public lobbying for giving Dr Raghuram Rajan another term as RBI governor has finally ended on Saturday, with the central banker opting out of the race.

The announcement of his exit, however, has come at worse time, when the country needs to brace for after-effects of a probable Brexit.


While the sky won’t fall due to Dr Rajan’s exit, experts feel it would definitely have an impact on bond markets, which attracts more foreign money than equities, and also stock markets.

The issue was first flagged by Christopher Wood of CLSA nearly one and a half months ago. “The biggest risk to both the bond market and the currency is if Dr Rajan’s term in office is not renewed,” he had written his report, following which the lobbying in favour of Dr Rajan’s continuance at Mint Street has began.

Foreign investors own $52 billion worth of Indian debt securities. Dr Rajan is a favourite for bond investors becau-se he had focused on maintaining real interest rates in contrast to negative rates in developed countries. This kept the dollar flow on for India, which helped the country accumulate $360 billion forex reserves — the highest in its history.

If investors feel that Dr Rajan’s exit would signal change of monetary stance that RBI has taken under Dr Rajan, experts feel India could see a massive outflow.
This would not be in the country’s interest as the Indian government needs to gather all its might to protect the economy and markets from the tremors of Brexit, which appears a closer possibility.

Apart from the threat of Brexit, the government have contend with the outflow of over $20 billion as dollar bonds mature between September and December.

Further, there is also a growing possibility of crude oil prices hardening as more and more shale oil wells shut down due to lower prices, taking out the fiscal comfort that the Modi government enjoyed during the last two years and putting further pressure on rupee and fiscal deficit.

With Dr Rajan opting out, Prime Minister Narendra Modi will be the only face of the Indian economy globally — any credit or discredit will go into his account now.

Location: India, Telangana, Hyderabad