It’s official: Raghuram Rajan is next RBI governor

first Post :6 Aug 2013

Prime Minister Manmohan Singh has approved the appointment of India’s chief economic advisor Raghuram Rajan as governor of Reserve Bank of India at a time when the country grapples with a weak currency and slowing economic growth.

The appointment of Rajan, 50, as the central bank governor is for three years. He will be the youngest governor to serve at the RBI.
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Current RBI governor D Subbarao’s term ends on 4 September while the next mid-quarter policy review is due on September 18.

Experts told CNBC-TV18 that a change of guard at the central bank will not mean a reversal of policies.

The biggest challenge for Rajan will be reining in India’s bulging current account deficit and stabilising the forex market as the rupee hit a record low of 61.80 against the US dollar today. The Indian currency has lost 14 percent in the last six months alone.

Dr Bimal Jalan, former RBI governor told CNBC-TV18 that Rajan is an extremely experienced person and an excellent economist.

“I am sure he will cope with the problems that we face,” added Jalan.

DK Mittal, Former Banking Secretary called  Rajan a “mature and renowned economist, while BJP senior leader Yashwant Sinha wished him well in his new role.

Planning Commission chairman Montek Singh Ahluwalia said he was delighted by Rajan’s appointment and wished him all the best.

“He is coming in at a tough time and knows exactly what the situation is. I can’t think of anyone better to overview the situation,” he told CNBC-TV18 in an interview.

He added that the primary job for an RBI governor is to give direction on how policies should move given what’s happening to the Indian economy.

Meanwhile C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council said Rajan is an excellent choice as the RBI governor as he has been dealing with economic problems for a while.

“Rajan will bring fresh approach to the Reserve Bank of India,” added Dr Rangarajan.

According to reports, Raghuram Rajan, professor at Chicago’s Booth School of Business and a former chief economist at IMF, had earlier turned down the government’s efforts to rope him in as deputy governor of RBI as he wanted to be RBI’s governor.

Rajan would be the first among recent RBI governors not to have spent a significant part of his career in Indian bureaucracy.

Not shy about speaking his mind, Rajan confronted conventional wisdom with a paper in 2005 at a US meeting of central bankers, warning that financial sector developments could trigger an economic crisis. The argument was dismissed by many at the time as alarmist.