Reserve Bank of India (RBI) Governor Urjit Patel’s resignation could have a significant effect on the currency and bond markets, market experts believed. The rupee non-deliverable forwards registered the steepest drop in four years. An index of U.S.-listed Indian stocks sank as much as 3.2 per cent in early trading, while futures on the Nifty 50 Index lost 1.6 per cent, Bloomberg reported.
Citing personal reasons, Patel on Monday announced his decision to step down from his post with “immediate effect”.
Viewing it as a negative signal, experts believe that volatility due to the state assembly elections results on Tuesday could further aggravate the market situation. With exit polls predicting a tight contest for the ruling BJP, traders are already reeling under pressure, preparing to send their shares to their worst session in two months.
Here are some of the reactions:
Mr. Sujan Hajra, Chief Economist, Anand Rathi Financial Services Ltd
This was unexpected. The timing is also surprising as the Governor continued after the contentious board meeting and also during the December monetary policy. This seems the culmination of the differences of opinion between the government and RBI on a large range of issues. We had the feeling that the differences are bridging but today’s event suggests otherwise. This will create uncertainty. The appointment of a credible governor quickly can dispel the situation.
R. Sivakumar, head of fixed income, Axis Mutual Fund
“I think typically when central bank governors or leaders anywhere in the world quit that potentially can have significant effect on the currency and bond markets. I think it’s something that we’ll be watchful for tomorrow. I think tomorrow and over the next few days we can expect heightened volatility in the markets.”
“For tomorrow, markets certainly will be concerned unless there is further clarifications that come through tonight. Otherwise it is likely that there will be some amount of volatility.”
A Prasanna, head of research, ICICI Securities Primary Dealership, Mumbai
“The news is definitely a big surprise. The timing just before this week’s board meeting suggests that there’s still a huge gap between government and RBI positions on key issues. Markets will now hope that the government has a plan of action ready so as to restore calm.”
Ashwani Mahajan, Chief of an economic wing of Hindu Nationalist Rashtriya Swayamsevak Sangh, The fountainhead of the BJP
“I think it was unexpected, this is something not on expected lines. Our country runs on a system and it is not individual centric. Board of RBI comprises educated and learned people, there are economists on the board. They all are also opinionated. The board is not just a rubber stamp”
Anjali Verma, economist, PhillipCapital India, Mumbai
“This comes as a surprise, and should (have) an adverse impact on investor confidence.”
Lakshmi Iyer, chief investment officer, fixed income, Kotak Mahindra AMC
“Markets were not prepared for this. Tomorrow is also the political uncertainty day. So, if that saves then you’ll see some saving grace. Otherwise, I don’t think markets may take this very kindly, especially dollar-rupee.”
“I was not expecting this. From a markets standpoint, it might rebound, that’s a different thing, but for a knee-jerk reaction, I think it’ll be negative for dollar-rupee and, therefore, logically for bonds also. We’ll have to wait and watch.”
Y H Malegam, former RBI board member
“Very unfortunate … It’s a combination of what perhaps has been going on for a long time”
“One of the factors that could be affecting this is the fear that the (RBI) board is no longer independent … therefore the governor maybe feeling the ability to function is in some sense being restricted.”
All India Reserve Bank Employees Association
“The news has come as a shock for us. Patel’s resignation cannot be a sudden thing. Transfer of RBI surplus to the government is one of the biggest bone of contention between the two. A committee was to be set up jointly by the RBI and the government to look into the transfer of reserves to the government. We think one of the trigger points could be the appointment of members of the committee,” the union said.
Here’s what other investors and strategists are saying:
“Our immediate concern is that if the resignation was influenced by the government’s interference with the central bank’s independence, it would obviously have very damaging consequences for RBI’s credibility,” said Anders Faergemann, a fund manager at PineBridge Investments in London. “Policymakers would need to address immediately to avoid a sharp market correction.”
“Markets are going to react very negatively to this news,” said Paresh Nayar, Mumbai-based head of currency and money markets at FirstRand. “It’s not a good outcome at all.”
BNP Paribas Asset
“There is a risk that the rates rally is now behind us, especially if oil prices are rebounding,” says Jean-Charles Sambor, deputy head of emerging-market debt “The medium-term outlook will be driven by how credible the replacement is and the relationship with the finance ministry.”
(With inputs from Bloomberg)