Urjit Patel appointed new RBI governor

Speculation over who will head the Reserve Bank of India after present governor Raghuram Rajan ends his term on 4 September has ended with the finance ministry appointing deputy governor and eminent economist Urgit Pater as the new governor.

Patel will take over as the 24th governor of the RBI on 5 September, a day after Raghuram Rajan ends his term as RBI governor, for a three-year term.

Rajan, whose term ends on 4 September, decided not to seek another term and opted to return to academics, which he found the better choice. He also wrote a letter to RBI staff stating he will not be there for a second term as governor.

Patel, 53, one of RBI's four deputy governors, was reappointed in January for another three years. He was in charge of the central bank's monetary policy department since 2013 and was seen as a leading contender for the governor`s job.

A Ph D from Yale University, Urjit Patel has worked at the International Monetary Fund (IMF), The Brookings Institution at Washington and the Massachusetts-based Boston Consulting Group.

A close lieutenant of Rajan, Patel headed a committee that introduced landmark changes, including a switch to inflation-targeting and adopting consumer prices as the new benchmark instead of wholesale prices.

Patel, as deputy governor also was responsible for managing money markets, and has faced criticism for a tighter grip on liquidity, a criticism that Raghuram Rajan also faced.

Patel, according to a Nomura note, is considered a `hawk` on his monetary policy stance and his appointment as the new governor assures continuity in monetary policy.

However, the new governor will have less freedom in deciding monetary policy as the job has been transferred to a joint committee of the Reserve Bank and the central government.

Patel will be the first governor to oversee interest rate decisions by a monetary policy committee (MPC), a six-member panel chaired by the RBI governor to decide on interest rates.

The governor will not enjoy a veto power, but will cast vote in case of a tie.

The decision of the committee - three each nominated by the government and the central bank – will be binding on the central bank. Currently, the RBI's Monetary Policy Department (MPD) assists the governor in formulating the monetary policy. RBI also considers views of stakeholders in the economy such as the finance ministry and advice of the Technical Advisory Committee (TAC) in deciding the repo rate - the rate at which the central bank lends to banks.