Central Banks

Here's how India fared under outgoing RBI Governor Raghuram Rajan

Raghuram Rajan
David Paul Morris | Bloomberg | Getty Images

Reserve Bank of India Governor Raghuram Rajan will preside over his final policy meeting Tuesday, marking the end of a stint that was characterized as much by efforts to inject some vim to India's reform drive as for his thoughts on public policy.

Rajan, a former chief economist at the International Monetary Fund, will depart the central bank in September after a three-year stint, the shortest of any central bank chief in India since at least the early 90s. Likened to a "rockstar" in India, Rajan became a popular figure in a country where central bankers typically stay outside the limelight.

He won plaudits in some quarters for nudging banks to do more to recognize their bad debts but was criticized by members of the government for not cutting rates aggressively enough. Some politicians also expressed reservations when Rajan spoke about the need for more tolerance, noting the RBI chief had exceeded his remit by commenting on political matters.

As for Tuesday's meeting, most analysts polled by Reuters forecast the RBI would keep the repo-rate at 6.50 percent.

"We expect a continuation of recent policy guidance, where stance is accommodative while rates are left unchanged," said Radhika Rao, an economist at Singapore's DBS Bank.

The focus of Tuesday's decision would, therefore, be on Rajan.

Goldman Sachs analysts Nupur Gupta, Vishal Vaibhaw and Andrew Tilton said the market will be keen to hear Rajan's "views on the formation of the Monetary Policy Committee and clean-up of bank balance sheets post his departure."

Rajan, who was formerly the chief economic advisor to the Indian government, was appointed Governor in September 2013.

Here's a look back at how India performed during his tenure on four key metrics: inflation, current account deficit, foreign exchange rate and the stock market.

The consumer price inflation was at 10.62 percent in August 2013 and eased to 5.77 percent in June 2016.

The RBI's inflation target is at 4 percent, with a band of plus/minus 2 percent.

Comparisons here are somewhat tricky as current account deficit data for the June quarter are not out yet.

Reuters data showed India's current account deficit in the three months to June 30, 2013 was approximately $21.77 billion, compared to $320 million in the three months that ended March 31, 2016.

To be sure, factors outside the scope of monetary policy have also helped to narrow the current account deficit, particularly the steep decline in oil prices.

India's stock market performance was relatively stable during Rajan's tenure, with foreign investors drawing comfort from Prime Minister Narendra Modi's reformist credentials as well as Rajan's steady handling of the economy.

However, concerns over the health of India's financial market remained due to a growing number of top firms who have been struggling to make interest payments on their debt.

Under Rajan's tenure, the RBI launched an asset quality review for India's public sector banks to take necessary steps to clean up their balance sheets by March 2017.

Rajan's policies helped to steer the rupee higher against the dollar, after the Indian currency hit record lows near 69 rupees to a dollar in the third quarter of 2013.

Rajan set up a program where banks were given incentives to offer dollar deposits to Indian citizens abroad in a bid to shore up India's foreign reserves and restore foreign investor confidence. The RBI then exchanged those dollars for rupees, said Reuters.

The rupee rose to as high as 58.36 against the dollar in 2014 before hitting levels near 69 against the greenback in February.

The narrower current account deficit and stabilization of capital outflow pressures in India seem to suggest, however, that the recent declines may stem partially from the broad strength in the greenback.

Since news that Rajan would not be offered a second term as Governor of the RBI broke, emerging market fund managers and global analysts warned that his exit could spur outflows from the country.

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