RBI pegs CAD at $56 bn, says no reason for rupee decline

 
Mumbai: Seeking to reassure investors, RBI Governor Raghuram Rajan Wednesday said there is no fundamental reason for rupee to fall again, and pegged the current account deficit for 2013-14 at USD 56 billion, much lower than the quantum estimated earlier.

He also said the Reserve Bank will not rush to close the special window opened for dollar purchase by oil companies.

The Governor also expressed the optimism that the second half of the current financial year will see better growth numbers on the back of good monsoon and the associated pick-up in consumption and healthy exports.

Referring to the recent decline in the value of rupee, the RBI chief said: "There is no fundamental reason for volatility in the exchange rate."

"At some time, it makes sense to take a deep breath and examine the fundamentals. I hope you all will do that," he said in the hurriedly called press meet.

Pegging a much lower CAD for the fiscal, Rajan said: "Our estimate now is that CAD this year will be USD 56 billion, less than 3 percent of GDP and USD 32 billion less than last year. Of course, some of that compression comes of our strong measures to curb gold import."

The current account deficit (CAD), which is the difference between outflow and inflow of foreign exchange, touched an all-time high of USD 88.2 billion or 4.8 percent of the GDP in 2012-13.

Earlier, the government had projected the CAD in the current fiscal at USD 70 billion, which was revised downwards to USD 60 billion by Finance Minister P Chidambaram on back of declining gold imports and recovery in exports.

"It's important that RBI clarifies interpretation of economic events and the likely direction of economic policies at times of uncertainty so that the market worries about the right things and does not get into a tizzy about the wrong ones. That is my quote today," Rajan said.

His remarks seemed to have calmed currency markets as the rupee gained 41 paise against dollar to close at 63.30, after declining in the previous five days in a row.

"We have no intention of rushing this process (of closing the special window for OMCs)," Rajan said.

The Reserve Bank in August had opened a special window to help the three state-owned oil marketing companies -- IOC, HPCL and BPCL -- to meet daily foreign exchange requirements and buy dollars directly from RBI.

The rupee, it may be mentioned, fell to a record low of 68.85 to the dollar on August 28.

Rajan said since October 14 most of dollar demand from oil marketing companies has been met from the market only.

The PSU oil companies are the biggest buyers of dollars, requiring USD 8-8.5 billion every month for import of an average 7.5 million tonne crude oil.

Expressing comfort at declining core inflation,narrowing CAD and better growth prospects in the second half on good monsoon, Rajan sought to reassure investors who fear India will be hit again as and when the US ends easy money policy.

Ruling out any major threat from the external front to rupee as well as the economy, Rajan said even if there is no more fresh FII inflows this year, there will not a problem to finance CAD as he country will have USD 32 billion less of CAD to finance this year.

"Last year FII inflows, both debt and equity, accounted for USD 26 billion. Let me assume that we get no inflow this year, and in fact outflows equal the inflows we got last year. In other words, there is a USD 52-billion turnaround in FII flows," the Governor said.

"Remember though that we have USD 32 billion dollars less of CAD to finance this year, and till yesterday, we raised USD 18 billion through new swap channels. So, if other financing remains the same as last year, which it seems on track, even if foreign investors pull out significantly more money this year than they have so far, we still can break even on capital flows," Rajan said.

Noting that OMCs have entered a swap arrangement whereby they will have to repay dollars to the RBI on various dates from February 2014 till April 2014, Rajan said: "One worry expressed by market participants is whether OMCs will add to further downward pressure on the rupee when it comes time for them to repay dollars to the RBI."

"This to my mind is a non-issue because we have three ways of managing the repayment. One is, of course, for the OMCs to buy dollars in the market. If exchange markets are calmer, this additional demand should be absorbed," he added.

Rajan said, "But if they are not calmer, we could roll over some portion of the swaps so they mature at a calmer time. But perhaps the easiest option would be for us to settle the swap with the OMCs by making net payments in rupees, and avoid the need for them to go back to the market for dollars. When the time comes, we will choose the most appropriate combination".

He also announced a bond purchase worth Rs 8,000 crore next Monday to inject liquidity in markets.

He further said the major outflows in the recent past following the tapering talks were debt outflows.

"Though that money has not come back, indeed our FII debt exposure, both corporate and sovereign, has come down from USD 37 billion on May 21 to USD 19 billion today. I presume what is left is more patient money, but given its diminished size, I do not see it is possible exit as a huge risk," the governor said.

Rajan's address came after stronger-than-expected US jobs data last week had sparked concerns about an early end to the Federal Reserve's stimulus, hitting the rupee and sending domestic bonds and shares tumbling. This led to FIIs pulling out more than USD 13 billion from bonds and over USD 2 billion from equities between end May and early September.

Though he termed food inflation "worryingly high", which rose to 10.09 percent in October, Rajan said he was comforted by a downward trend in the core consumer price index, which declined from 8.5 percent to 8.1 percent in the month.

"I am somewhat more heartened by the outcome of core CPI inflation, which declined to 8.1 percent from 8.5 percent in September. The momentum for core inflation is also on the decline," Rajan said.

Raghuram Rajan meets Chidambaram; discusses economic situation

Rajan discusses economic situation with Chidambaram

Ahead of the RBI's central board meet, the central bank chief Raghuram Rajan on Thursday met Finance Minister P Chidambaram and is understood to have discussed economic issues. "Our meeting was part of regular interaction that takes place between RBI and Finance Ministry," Rajan said after his hour long meeting with the Minister and Economic Affairs Secretary Arvind Mayaram. The Central Board of Reserve Bank will meet in Raipur on Friday to discuss key economic and financial developments. The RBI board meets at least once every quarter. The meeting would be chaired by Rajan. The four deputy governors are the official directors on the board, while Mayaram and Financial Services Secretary Rajiv Takru are the government nominees. There are also 11 non-official directors on RBI board. The meeting assumes significance in the wake of economic growth falling to a four year low of 4.4 per cent and current account deficit (CAD) at an elevated level of 4.9 per cent in the April-June quarter. While the government has been emphasising on measures for incentivising growth, the RBI in its policy review last month had hiked interest rates by 0.25 per cent. The RBI is scheduled to announce its second quarter policy review on October 29. Although Prime Minister Manmohan Singh and other government functionaries are expecting the growth to improve in the second half of this fiscal, Asian Development Bank in its recent report lowered India's growth projection for 2013-14 to 4.7 per cent. The economic growth rate slipped to a decade's low level of 5 per cent in 2012-13.

RBI governor Raghuram Rajan receives Deutsche Bank Prize, 2013

Reserve Bank of India governor Raghuram G Rajan has been awarded the Fifth Deutsche Bank Prize for Financial Economics 2013, in recognition of his ground-breaking research work which influenced financial and macro-economic policies around the world.

The academic prize is sponsored by the Deutsche Bank Donation Fund and carries an endowment of euro 50,000. The Centre for Financial Studies (CFS) awards the prize bi-annually in partnership with Goethe University Frankfurt.

Presenting the prize to Rajan, Deutsche Bank co-chairman Juergen Fitschen yesterday said that it would have been hard to find a more deserving winner for this year's award.

Rajan's career "is not only marked by path-breaking, empirically-based research, but he never shied away from the real world of complex policy issues and special interests. He never shied away from speaking inconvenient truths," Fitschen said.

He noted that Rajan had in 2005 warned about the dangers of building up "unsustainable imbalances in the financial system," three years ahead of global financial crisis.

"Prof. Rajan's work revealed that the relationship between the financial sector and the rest of the economy is so complex that it is not good enough to simply look at the size of the financial sector in relation to the gross domestic product (GDP), as is done so often at present," Fitschen said.

He had also "warned us about the dangers of using or rather misusing" financial regulations and financial systems for purposes other than their original objectives, for example, for safeguarding stability or fostering growth, the Deutsche Bank co-CEO said.

The housing bubble in the United States, which triggered the financial crisis in 2008, had highlighted the danger of using the financial system to make up for the failures in social policies.

Jury chairman and director of the Centre for Financial Studies Michael Heliassos said the organisers are quite pleased to welcome Rajan in his new capacity as the RBI governor.

Rajan was picked up for the prize from more than 260 nominations from top universities, central banks and research centres in 37 countries. More than half of the nominations came from the US.

RBI governor says forex reserves comfortable

 
Even as the country’s foreign exchange reserves are at a 39-month low, Reserve Bank of India (RBI) Governor Raghuram Rajan says they are at a “comfortable level”.

According to RBI data released last Friday, the country’s foreign exchange reserves were at $275.3 billion as on September 13, which went up by about half a billion over the previous week.

The central bank has been cautious in using its forex to stem the depreciation of the rupee, which has weakened by 14.4 per cent against the dollar this financial year. Under Rajan, who took charge on September 4, the currency has been able to halt its fall, which has appreciated 5.5 per cent this month.

In July, the central bank had beefed up its foreign exchange market intervention as it sold close to $6 billion to stem the rupee fall. Rajan has also announced several steps, like swap facility for banks for foreign currency non-resident bank, or FCNR (B), deposits and banks’ overseas borrowing limit. Both these windows, which are available till November 30, are expected to swell the forex kitty by $10 billion.

According to a Bank of America Merrill Lynch report, India’s import cover has halved to seven months — last seen in 1998 — in the past five years, which is well below the eight to 10 months needed for rupee stability.

Rajan, who was speaking at a seminar in Frankfurt, reiterated the policy stance of the central bank was “neutral” at this point in time, though he said high and persistent retail price inflation was a concern. “At this point, we are neutral, we will see how things develop,” he said when asked about the central bank’s policy stance.

The RBI chief added inflation was not just due to higher food prices. “Unfortunately, there is still some inflation when you strip out the effects of food and energy. Therefore, it is not just food, it’s other factors also, which are driving inflation,” Rajan told reporters on the sidelines of the conference.

During the mid-quarter policy review, Rajan had hiked the repo rate by 25 basis points (bps) to 7.5 per cent, while reducing the marginal standing facility rate by 75 bps to 9.5 per cent.

“The intent here is that when the repo rate becomes the effective policy rate, it should be consistent with inflationary conditions in the economy. On net, these measures will reduce the cost of bank financing substantially while allowing us to take an appropriately precautionary stance on inflation,” Rajan said while announcing the policy last Friday.

He added there was a need to bring real interest rates down as low as possible. According to him, there is a need for new innovative ways to bring down real interest rates. Rajan believes emerging market economies must resort to fiscal tightening when money is flowing in.

The US Federal Reserve has recently decided against reducing its massive monetary stimulus, known as the third round of quantitative easing. According to Rajan, an exit from quantitative easing will be more abrupt than entry. He said there was a need to rethink dangers of over-stimulation. Besides, there is a need to rethink dangers of cross-border capital flows. Going forward, the external consequences are large, he added.

Sign in | Create a Rediffmail account Rediff.com » Business » Rajan meets PM, FM ahead of monetary review Rajan meets PM, FM ahead of monetary review

Days before his first monetary policy review, Reserve Bank of India (RBI) Governor Raghuram Rajan met Prime Minister Manmohan Singh and Finance Minister P Chidambaram on Tuesday. 
The meeting also comes at a time when the US Federal Reserve is expected to take a call on tapering of the bond-buying programme known as quantitative easing.
“RBI has constant consultations with the finance ministry. This meeting was part of that. We discussed a whole gamut of issues,” Rajan told reporters on Tuesday after meeting Chidambaram.
Later, during the day, the government hiked import duty on gold jewellery to 15 per cent from the existing 10 per cent in an effort to curb the spiralling current account deficit (CAD) that touched an all-time high of 4.8 per cent of the GDP in FY13.
A six-month high inflation in August has already made things tough for Rajan at a time when industry is demanding cut in the policy rate to boost growth.
Inflation rose 6.1 per cent in August from 5.8 per cent in July, driven by expensive food items, particularly onions, which saw the rate of price rise skyrocketing to 244.6 per cent from an already high 119.4 per cent.
According to a report by Dun and Bradstreet, RBI is expected to maintain a status quo on the policy rate. Ironically, onion prices can’t be brought down by interest rate policy.
However, that may desist Rajan from easing the central bank’s monetary stance in the mid-quarter review on the 20th of this month, economists said.
India’s economic growth crashed to a four-year low of 4.4 per cent in the first quarter of 2013-14.
On the other hand, inflation in manufactured products further fell to 1.9 per cent from 2.81 per cent, despite depreciation of the rupee, increasing imported inflation. This showed that demand in the Indian and global economy remained subdued.
Usually, it is manufactured product inflation on which RBI focuses its attention; it is core inflation within manufactured item inflation that RBI is usually concerned.
The core inflation relates to manufactured items sans food articles. It fell further to 1.9 per cent in August from 2.3 per cent.
The low rate of price rise in manufactured items and core inflation should have been ideal conditions for RBI to cut rates, but the party is being spoilt by food articles.

'RBI unlikely to reverse liquidity tightening steps on Sep 20'

 
Mumbai: Reserve Bank's new Governor Raghuram Rajan may wait for signs of a sustained stability in the rupee and is unlikely to reverse the liquidity tightening steps at Friday's mid-quarter review, Standard Chartered Bank said Tuesday.

"While the rupee's 7.6 percent appreciation (against dollar) from September 3-16 is encouraging, the RBI might prefer to wait longer for confirmation of sustained currency stability - a key determinant of such a reversal," it said in a report here.

"A complete reversal of liquidity tightening measures on September 20 looks unlikely to us," it added.

In order to arrest rupee's fall, Rajan's predecessor D Subbarao in July had announced liquidity tightening measures, including a cap on banks' overnight borrowings which increased the short-term rates in the system.

The RBI reduced the banks' liquidity adjustment facility (LAF) borrowing limit from 1 percent of the total deposits to 0.5 percent and also asked banks to maintain higher average CRR (cash reserve ratio) of 99 percent of the requirement on daily basis.

The StanChart report, however, said the RBI might recalibrate some of its liquidity-tightening measures in the mid-quarter monetary policy review on September 20 to reassure the market that the steps announced are temporary.

According to the report, RBI Governor could reduce the daily minimum CRR balance from 99 percent, or marginally increase the LAF borrowing limit from 0.5 percent of net demand and time liabilities (NDTLs).

"These changes are unlikely to reduce the call rate substantially below the MSF rate which is at 10.25 percent, but we believe they would offer some comfort to the markets, with the hope of further easing later," it said.

StanChart expects the RBI Governor to stay hawkish on inflation front as August CPI inflation remained elevated, and moreover, WPI inflation accelerated to 6.1 percent. "The headline number is likely to keep the RBI cautious."
The report said the RBI may adopt a wait-and-see stance on September 20 given that the government is yet to announce measures to contain the fiscal deficit at 4.8 percent of GDP.

In the first four months of FY'14, the fiscal deficit reached a level equivalent to 60 percent of the budgeted target. StanChart expects the US Fed to taper its quantitative easing by USD 10 billion per month and maintain a relatively dovish policy tone.

"If the RBI only fine tunes the existing liquidity framework and reiterates its intent to gradually exit the tight liquidity regime, then we expect a limited market response," the report said.

"The markets will then watch closely for signals from the new Governor on the timeline and possible preconditions for a roll-back of liquidity-tightening measures," it said.

The report said given the uncertainty over the RBI's potential monetary policy responses, it remains neutral on government securities duration.

RBI governor Raghuram Rajan’s report to be lynchpin of financial sector reforms

NEW DELHI: Next up on India's reforms agenda is the financial sector. After retail, aviation and fuel prices, the government is getting ready to roll out the long-overdue, next generation of measures aimed at freeing up the country's financial sector and a framework for this could be in place as early as next month.

The plan to kick off the process, stalled for many years, was discussed in the run-up to the appointment of Raghuram Rajan as Reserve Bank of India governor and has the highest political sanction. The reforms blueprint will lean heavily on the two high-profile reports already available with the government, one of them authored by Rajan himself.

"We will have a framework ready soon and will take it to the Financial Stability and Development Council (FSDC) for deliberation before the measures are rolled out," a senior finance ministry official told ET. 

Financial sector reforms took a back seat after the global meltdown in the belief that India's conservatism had saved it from the worst effects, which which wasn't the right lesson to draw from the experience, Rajan had said in his 2008 report on financial sector reforms, 'A Hundred Small Steps'.

The policy paralysis that gripped the government in the first three years of the UPA-2 administration (2009-12) also contributed to the lack of progress on changes in the sector even as the government swore on the need to improve financial inclusion.

P Chidambaram's return as the finance minister in August last year was followed by a series of measures to break the policy logjam — fuel price reforms, the opening up of multi-brand retail, the establishment of the Cabinet Committee on Investment. It's now the turn of the financial sector. "The idea is to pick out 10-12 recommendations that could be taken up," the official added.

Drawing up the blueprint for change shouldn't be too onerous as two committees have conducted an exhaustive study of what needs to be done.

The High-Powered Expert Committee (HPEC) on making Mumbai an international financial centre called in 2007 for "deregulating, liberalising and globalising, all parts of the Indian financial system at a much faster rate".

Rajan's 2008 report cited above spoke of the "need to deregulate certain areas of the financial sector" and "focus on creating necessary institutions, and closing important gaps in regulation".

The Reserve Bank has sought suggestions on the banking structure in India in response to a discussion paper released last month. That could yield more ideas for the reforms exercise.

The Rajan committee had suggested more small private banks, disinvestment in small, underperforming state-run banks, the freeing of branch licensing rules, and the greater participation of foreigners in Indian financial markets.

Rajan, reputed as one of the few who warned about trouble ahead of the 2008 financial crisis, has already set the ball rolling in a way with a flurry of announcements on the day he took over as the RBI governor — September 4. He also said that new bank licences could be issued in January. India had first raised the prospect of new banks in 2010. Financial sector reforms are badly needed, experts said.

"This is good news... financial sector reforms in India are long overdue," said Jahangir Aziz, senior Asia economist and India chief economist at JPMorgan Chase. The "past five years we did not touch anything for the fear of doing something unintended".

Aziz also cited the widespread belief in India that the country was ring-fenced in 2008 by the restrictions and controls it had in place and said there had been no empirical study of the cost that taxpayers had to bear.

India's interest rates shot up to among the highest in emerging market economies after the crisis, besides which RBI's foreign exchange losses have been substantial, he said. Even when it comes to financial inclusion, competition is needed to ensure that it happens, he said.

Stagflation: Biggest challenge for Raghuram Rajan

Andy Mukherjee

Rajan's call to diaspora can't stem rupee rout, says Andy Mukherjee.
Raghuram Rajan's first move as India's monetary czar has been to solemnise a marriage between a needy country and its greedy diaspora. That's the easy part.

Tackling the gruelling Indian stagflation will be the real test for the former International Monetary Fund chief economist.
Rajan, who presciently warned developed nations about a risky buildup of leverage in 2005, began his career as a central banker in Mumbai on September 4 by reaching out for the low-hanging fruit: the monetary authority, he said, will charge local lenders a fixed 3.5 per cent annual fee to convert new long-term dollar deposits from expat Indians into rupees.

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Image: Raghuram Rajan (L), newly appointed governor of Reserve Bank of India (RBI), hugs the outgoing governor Duvvuri Subbarao during the taking over ceremony at the bank's headquarters in Mumbai.

New RBI chief Rajan raises hopes with action plan

Mumbai: New Reserve Bank of India (RBI) chief Raghuram Rajan kicked-off his term with a bang, announcing a spate of measures to support the embattled rupee and unveiling a raft of steps to liberalise financial markets and the banking sector.

In an unexpectedly detailed and wide-ranging briefing, Rajan outlined plans to attract more funds from overseas by subsidising hedging costs for banks and making it easier for importers and exporters to hedge currency risk.

He made clear his intention to liberalise markets, including pushing for more rupee trade settlement, introducing new financial products such as overnight interest rate swaps and removing curbs on opening new branches by Indian banks.

"Some of the actions I take will not be popular," said Rajan, who famously predicted the global financial crisis and took over at the central bank in Mumbai on Wednesday after nearly a year as chief economic advisor in the finance ministry in New Delhi.

His forceful debut, which contrasted with more circumspect public comments in recent months, drew rave reviews from central-bank watchers.

A. Prasanna, economist at ICICI Securities Primary Dealership, said he expects bonds, the rupee and Indian stocks, especially those of banks, to react positively on Thursday.

"Overall, the way and kind of steps he has announced will instill confidence in the market, which was in short supply."

A prominent former International Monetary Fund chief economist, Rajan, 50, succeeds Duvvuri Subbarao at the helm of the Reserve Bank of India. He enters office in the eye of a financial storm as the country grapples with its worst economic crisis since 1991, which has sent the rupee skidding by some 20 percent this year.

"The governorship of the central bank is not meant to win one votes or Facebook 'likes'. But I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism," he told reporters.

Many critics and investors have complained about what they viewed as inconsistent communication and insufficient action from policymakers as economic growth has crumbled to a four-year-low of 4.4 percent in the June quarter and as the rupee last week hit a record low.

"Expectations were quite high from him and he has gone far beyond expectations on day 1," said Barclays economist Siddhartha Sanyal. "The fact that he has come with such pointed steps in mind shows that we will see more concrete steps very soon."

Earlier on Wednesday, the rupee rallied after suspected dollar sales by the central bank and after Reuters exclusively reported that the RBI was considering a plan that would help lenders raise money from expatriate Indians. Rajan, in his remarks, outlined the plan to attract more funds from non-resident Indians (NRIs) as part of a broader push to lure inflows.

The rupee recovered sharply from a day's low of 68.62 per dollar to close at 67.065.

Under the plan, the central bank will offer a swap window to banks for fresh dollar deposits mobilised from non-resident Indians. India has the world's second-biggest diaspora, according to the Ministry of Overseas India Affairs, and the country has turned to overseas Indians for help in past financial crises.

The central bank will also offer forex swap into rupees at a concessional rate below market levels for banks who raise dollar funds through overseas borrowings.

HIGH EXPECTATIONS

Rajan's arrival has been welcomed by some traders, who hope for a fresh approach to the RBI's controversial bid to defend the rupee by tightening cash conditions and raising short-term interest rates. Those measures have pushed up borrowing costs even as economic growth sputters and have shown little success to date in braking the rupee's descent.

Among Rajan's measures, he said banks should gradually be allowed to decrease their mandatory holdings of government securities, which would free up capital for lending.

He also said new bank licences should be awarded on an ongoing basis. The central bank is now in the process of awarding the first new bank licences in a decade.

Rajan also proposed the issue of inflation-indexed bonds linked to the consumer price index, an indication that the central bank may soon shift its inflation benchmark from the wholesale price index.

"He didn't take cover saying that he will first overcome the current problems and then take steps. He thinks both can be done simultaneously," Prasanna if ICICI Securities said.

Rajan also pushed back the date of the RBI's next monetary policy review by two days to September 20. That will give the central bank more time to consider the outcome of what is expected to be a pivotal two-day meeting of the US Federal Reserve, ending on September 18.

The prospect that the Fed will soon unveil a plan to start winding down its monetary stimulus is weighing on emerging markets, with India faring worse than most because of a lack of confidence it can address its hefty fiscal deficit and its record current account deficit.

In a reminder of the uphill task Rajan faces, a report on Wednesday showed that activity in India's services sector shrank in August for the second straight month for its lowest reading in four years, the latest indication that growth in Asia's third-largest economy is still slowing.

"The biggest positive in this entire speech is the confidence. I think there will be decisiveness in the way things move, which will spread to the markets as well," said Ananth Narayan G., co-head of wholesale banking for South Asia at Standard Chartered Bank.

Rajan effect: Rupee climbs 138 paise against dollar

The rupee on Thursday strengthened by hefty 138 paise to trade at 65.69 against the dollar at the Interbank Foreign Exchange market after fresh measures by the Reserve Bank of India to stem the currency's slide.

The rupee had settled at 67.07 against the dollar on Wednesday, up by 56 paise over the previous day's close.

Traders said dollar selling by exporters and banks and fresh measures announced by new RBI Governor Raghuram Rajan to curb the rupee's slide helped domestic currency recover.

The dollar's weakness against other currencies overseas also supported the rupee's sentiment, they said.

Meanwhile, stock markets were up by over 2 per cent in early trade.

The BSE benchmark index soared by 488 points to 19,055.74, while National Stock Exchange's Nifty rose by 153 points to 5,601.90 in opening trade.

The new RBI governor on Wednesday announced measures, such as liberalisation of the financial market by enhancing the limits for exporters to re-book cancelled forward exchange contracts and opening a special concessional window for swapping foreign currency non-resident deposits and dollar funds, to support the rupee.

Can Arjuna get country out of Chakravyuha?

MUMBAI: Outgoing Reserve Bank of India governor D Subbarao expressed hope that his successor Raghuram Rajan would be like Arjuna and find his way out of the Chakravyuha that the economy is in.

In 2010, Subbarao had compared the expansionary monetary policy to the Chakravyuha—a battle formation from which escape is next to impossible. He had also compared himself with Abhimnanyu the warrior who was trapped in the formation. "I wanted to hand over to my successor an economy that was stable. But now Raghuram has to be Arjuna who can get the country out of the Chakravyuha. I hope you will be able to tell your successor that I am handing over a miracle economy," said the outgoing governor while speaking at a farewell event organized by RBI.

Describing the challenges he faced while taking charge, Subbarao said that he made the transition from the finance ministry to the central bank in 24 hours. "To say that I was bewildered was an understatement. I must admit that in my early weeks I was driven more by a fear of failure than a desire for success. But that changed with the confidence of having a very strong institution behind me

The governor also came out with a "to-do" list for his post-RBI life some of which was tongue-in-cheek. "I want to study mathematics and linguistics. I have been fascinated with these two subjects—one is the language of science and the other is the science of languages. I want to learn salsa dancing. I want to travel in the country without a purpose just for the sake of travelling," said Subbarao. "I might start a tutorial class on taking baby steps or doing flip flops since I have so much experience with them," he added. "I will enjoy seeing 'Chennai Express' in the matinee show when you are all working. I am going to enjoy not having to say something profound every time I open my mouth. Most of all I will enjoy regaining my autonomy."

Bidding the governor farewell, senior-most deputy governor KC Chakrabarty said that Subbarao had left behind a legacy of establishing RBI as a knowledge institution and instilling the need for the central bank to provide accountability.

Speaking about his successor, Subbarao said that by choosing him to succeed a heavyweight such as Y V Reddy, the government had done a great favour on him. "It has done an every greater favour by appointing an intellectual like Raghuram Rajan to succeed me," said Rajan. Interestingly, both the outgoing and the new deputy governor have built a reputation in RBI for their obsession with physical fitness. While Subbarao has participated in the Mumbai Marathon and is known to jog every day. His successor Rajan, who was among the youngest in the room, is a marathon runner as well who also plays the squash and is an avid swimmer.

 

Raghuram Rajan to take over as RBI Governor on Thursday

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Mumbai, Sept 3:  

Raghuram Rajan will take over as the RBI Governor on Thursday. He takes over at a time when the country is battling a rapid fall in the rupee, high inflation, low growth and burgeoning current account deficit.

A former chief economist with the International Monetary Fund and economic advisor to the Finance Ministry, 50-year-old Rajan will take over a difficult assignment from Duvvuri Subbarao on his completing five years in Mint Road.

Rajan has already said that he has no magic wand to face the challenge before the country but would deal with them one at a time.

The Government, which was at the receiving end of Subbarao’s unrelenting focus on inflation control at the cost of low interest rates, would hope that the new incumbent would reverse some of those policies.

“We have enough ideas. It is not just the currency, it is financial inclusion, it is growth. I think there is a lot to do. There are challenges in the economy... These things are not going to be overcome overnight. There is no magic wand.

But there are undoubtedly solutions to many of the problems that the RBI can tackle and the job is to go ahead and do it.

“We will do it one step at a time. Make sure that it progresses every day,” he told reporters yesterday on his last day of office at the Finance Ministry.

Rajan, who was appointed as the Chief Economic Advisor in the Finance Ministry in August last year, brings to the RBI a vast experience gained at the IMF and during the brief stint in the government.

Known for his frank views, Rajan, who will be the 23rd Governor of the Reserve Bank of India (RBI), was acclaimed for predicting the 2008 global financial crisis. In 2005, he had delivered a lecture critical of the financial sector, arguing that a financial disaster might be looming.