India names new Central Bank governor a day after Patel resigned
Patel's exit comes after a lengthy stand off with the government of Prime Minister Narendra Modi
India named on Tuesday a former finance ministry official as new governor of its central bank to replace Urjit Patel who resigned a day earlier, a move that rattled investors worried about the bank's independence.
Shaktikanta Das was chosen as new governor of the Reserve Bank of India for a three-year term.
The shocking resignation of Mr Patel, which sent the country's weakening rupee lower against the dollar, will negatively impact the investment climate and increase uncertainty, analysts say.
Mr Patel’s revelation that he was stepping down from his post at for “personal reasons”, came against the backdrop of a lingering public dispute between the RBI and the government over a number of issues.
“We had the feeling that the differences were bridging but [this] event suggests otherwise. This will create uncertainty,” said Sujan Hajra, a former RBI director, who is currently the chief economist at Anand Rathi, a financial services firm based in Mumbai.
The RBI and the government have been locked in a tense war of words for weeks. They failed to see eye-to-eye on matters ranging from releasing reserves to New Delhi, policy differences on lending and the interest rate regime. Effectively the autonomy of the central bank is at stake and Patel was unyielding to the government up to his resignation.
The acrimonious tensions seemed to settle down following a crucial RBI central board meeting on November 19, at which the two sides appeared to be eager to come to a truce. The board decided that a committee would look into some of the areas that were a source of friction.
Mr Patel's resignation will now "lead to questions about whether the government is trying to stifle institutions and whether the resignation is a statement to protect the RBI’s independence,” said Sonal Varma, the chief India economist at Nomura.
This “along with the lack of policy coordination between the RBI and the government will mean higher India risk premium, at least in the short term, in an environment where domestic political uncertainty is anyway on the rise owing to the elections”, she said.
Markets were initially impacted by the news and key state election results, which are due to be released on Tuesday, seen as a litmus test for prime minister Narendra Modi's popularity ahead of a general election which will be held in India by May.
India's government tried to calm the situation, with finance minister Arun Jaitley taking to Twitter to say “the Government acknowledges with deep sense of appreciation the services rendered” by Mr Patel to India, adding that he wished him “all the very best and many more years of public service”.
Mr Patel's term as governor was not due to end until September next year.
His resignation comes ahead of another crucial RBI board meeting which is scheduled for Friday, at which issues including governance in the central bank due to come up. It is unclear if this meeting will still go ahead on the planned date, following Mr Patel's resignation, which came into effect immediately.
Updated: December 11, 2018 05:45 PM