While Raghuram Rajan brought calmness to the currency and the equity markets in times of extreme volatility in September 2013, his Saturday’s announcement to move out and not continue at RBI beyond September 4, 2016 is unlikely to go down smoothly at the markets on Monday. Experts say that the currency, bond markets and even the equity market may witness volatility in the near term and the market would be closely looking at the quality of his replacement.
“Bonds and currency markets will react negatively and may have an impact on the markets too as Rajan provided confidence to the markets especially on currency stability and inflation. The most important aspect is that now we need an equally competent replacement who is deeply into global financial system as we are closely linked to the issues concerning the world economy,” said CJ George, MD, Geojit BNP Paribas Financial Services terming Rajan’s exit as “country’s loss.”
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Others too agree and there is a feeling that at a time when investors and economies are jittery over global growth and developments around Brexit, this development unnecessarily creates uncertainty in the market and in the minds of investors.
Raamdeo Agrawal, joint MD of Motilal Oswal Financial Services termed it as an unfortunate development and a change that the market was not looking for. “Rajan is respected across the world and the foreign investors had a lot of confidence in him. Foreign Portfolio investors are an important component of Indian markets and there may be some volatility in the market. However, my concern is for the long-term as the country needs a strong replacement. While we may get a person of high integrity, it needs to be seen if he/she can match Rajan’s competence as he did a wonderful job over the last three months,” said Agrawal.
It is important to note that in the four trading sessions after Raghuram Rajan took over from D Subbarao on September 4, 2013, the benchmark Sensex at the Bombay Stock Exchange jumped by close to 10 per cent. Even the Rupee gained over 7 per cent against the dollar from a low of 68.8 it hit on August 28, 2013. There are some who point that this development is a result of friction between Delhi’s desire for sharp cut in interest rates to push growth and RBI’s line of going for macroeconomic stability.
“While the central government had the fiscal policy under its control, they did not have the monetary policy in their control as Rajan took his decisions. I don’t see much virtue in government’s desire for sharp cut in rates as there is not much demand in the economy,” said a leading market analyst on conditions of anonymity.
Earlier this month, the rupee headed to a one-week low in the wake of a report that Rajan did not want to remain at the central bank, citing unidentified sources. Rupee fell to 67.45 per dollar, down 0.3 per cent, after Anandabazar Patrika reported that Rajan would prefer to go back to the United States after his three-year term expired, citing sources close to him. Rajan has been a reassuring figure for foreign investors as well, who cheered him for his efforts to lower inflation and clean up PSU banks’ bad loans.
‘A result of friction’
It is important to note that in the four trading sessions after Rajan took over on September 4, 2013, the Sensex at the jumped by close to 10 per cent. Even the Rupee gained over 7 per cent against the dollar from a low of 68.8 it hit on August 28, 2013
There are some who point that this development is a result of friction between Delhi’s desire for sharp cut in interest rates to push growth and RBI’s line of going for macroeconomic stability
Earlier this month, the rupee headed to a one-week low in the wake of a report that Rajan did not want to remain at the central bank, citing unidentified sources