In hard times,RBI gets reforms roadmap author Rajan as head

The Government and the Reserve Bank are working together to address these challenges.

Written by Express News Service | New Delhi | Published:August 7, 2013 4:36 am

Raghuram Rajan,chief economic advisor to the Finance Ministry,a former chief economist at the IMF who was among the first to predict the 2008 global financial crisis,will become the 23rd Governor of the Reserve Bank of India. He will take over from D Subbarao,who retires on September 4 amid a sharp economic slowdown and a plunging rupee.

“Prime Minister has approved the appointment of Raghuram Rajan as the Governor of Reserve Bank of India for a term of three years,” said a Finance Ministry statement. His term is extendable by a period of two years.

Rajan’s appointment came through on a day when the rupee hit a lifetime low of 61.80 against the US dollar. But as soon as his order filtered through the tickers,the currency recovered 20 paise,a measure of the confidence the market has in the celebrated monetary economist.

In remarks after the announcement,Rajan,50,a PhD from MIT and a University of Chicago professor,said: “These are challenging times for the Indian economy,though no one can have any doubt about the country’s promise. The Government and the Reserve Bank are working together to address these challenges.” He cautioned that there is no “magic wand” to

make problems disappear instantly. “I have no doubt we will deal with them,” he said.

He will be looking to extend this confidence as the economy battles its toughest slump in decades with the currency having lost 10.76 per cent against the US dollar since January 2013,the worst performer among all major currencies. The losses are on the back of a record current account deficit that has touched 4.8 per cent of GDP as gold,oil and coal imports ballooned and RBI’s growth projections for 2013-14 dipped to 5.5 per cent.

“I would like to congratulate Raghuram Rajan. He will take up this job at a difficult time and I hope he will be able to fulfil the responsibility towards the country. At the same time,I hope he will be able to maintain and preserve the autonomy of the RBI and not succumb to outside pressures,” said Yashwant Sinha,former finance minister and BJP leader who also heads Parliament’s Standing Committee on Finance.

Rajan,who turned 50 in February this year,will be the second youngest Governor at the RBI. The youngest was Prime Minister Manmohan Singh who had become Governor just days before his 50th birthday in 1982.

The new Governor will also be instrumental in selecting candidates for the new bank licenses that are expected to be handed out be early next year.

Rajan has been leading the government’s offensive against the rupee and mounting investment concerns. His first call on interest rates will happen just a week after taking over — on September 18 — in the mid quarter review of the monetary policy to signal whether he will persist with or reverse Subbarao’s high interest rate regime.

He has served as honorary economic adviser to the Prime Minister when he laid out a reforms agenda for the financial sector as chairman of the high-level committee on Financial Sector Reforms. He took over as the top adviser in the finance ministry in August last year as Singh put in place a new team at the North Block led by finance minister P Chidambaram,to revive investments in the economy.

Reuters adds: In a March interview,Rajan had said he believed inflation of around 5 percent in a developing economy is “reasonable”,putting him on the same page as Subbarao,who has set 5 percent as medium-term goal and 3 percent as a long-term target. Rajan also favours formation of a monetary policy committee,as opposed to the current powers enjoyed by the governor,a set-up that would bring the RBI more in line with the practice at major central banks elsewhere.

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