Mumbai/NewDelhi: Raghuram Rajan, a suave, unflappable University of Chicago economist, will step into the eye of the storm roiling India’s economy on Thursday as the new governor of the Reserve Bank of India (RBI) and chief defender of a nose-diving rupee.
The rupee has plunged nearly 20% since May, as Asia’s third-largest economy confronts its worst crisis since 1990-1991.
The governments piecemeal efforts to stabilise the rupee have done little to halt its steep slide. It has tumbled about 10% alone since Rajan’s appointment on August 6. He will succeed Duvvuri Subbarao.
Rajan has few policy options to revive the rupee, but one thing he can do is explain to financial markets more clearly what steps India’s central bank is taking and the thinking behind them.
Investors and economists have complained that the RBI has caused unnecessary confusion with some pronouncements.
The big question is whether the former chief economist of the International Monetary Fund (IMF), who famously predicted the 2008 global financial crisis, will take the helm of the RBI with a whisper or a bang.
In other words, will he take his time or come out with fresh policy announcements like Bank of Japan Governor Haruhiko Kuroda, who launched a massive stimulus package within weeks of taking office earlier this year.
“ROCK STAR ACADEMIC IMAGE”
Rajan is a distinguished academic and author of the prize-winning book “Fault Lines: How Hidden Fractures Still Threaten the World Economy”.
He gained fame with a 2005 paper at a US meeting of central bankers, warning that financial sector developments could trigger an economic crisis.
Rajeev Malik, an Indian-born economist at CLSA Singapore, fears Rajan’s “rock star academic image” could be a hindrance.
“That is because it has generated unrealistic hope that he has some magical prescription to fix our problems,” he wrote in the Business Standard newspaper on Tuesday.
Rajan will swap his first floor office in the splendid red sandstone British colonial building that houses the finance ministry in New Delhi for a view of the Arabian sea from the 18th floor of the central bank’s Mumbai headquarters.
He will officially become the 23rd governor of the RBI after signing an oath of secrecy on Wednesday and will take charge operationally on Thursday.