India names Raghuram Rajan as next central bank governor

Tue Aug 6, 2013 8:43am EDT
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By Manoj Kumar and Tony Munroe

NEW DELHI/MUMBAI (Reuters) - India named Raghuram Rajan, a prominent former International Monetary Fund chief economist who in 2005 predicted the global financial crisis, to lead its central bank as the country struggles to defend a rupee that hit a record low on Tuesday.

Rajan, 50, will take over from Duvvuri Subbarao, whose turbulent five-year tenure ends on Sept 4, amid a darkening outlook for Asia's third-largest economy.

In terms of monetary policy, Rajan is seen to be a pragmatist whose views on inflation are roughly in line with those of Subbarao, who fought an uphill battle against price pressures for much of his term in an economy plagued by supply-side bottlenecks.

"He has the intellectual pedigree and policy experience but my worry is people will think a smart guy coming in will fix all of India's problems," said Bhanu Baweja, head of emerging markets strategy at UBS in London.

"The problem in India is political consensus and execution. By itself the appointment doesn't change my view on the market, I am underweight the rupee and Indian equities," Baweja said.

In a March interview with Reuters, Rajan said he believed inflation of around 5 percent in a developing economy is "reasonable", putting him on the same page as Subbarao, who has set 5 percent as medium-term goal and 3 percent as a long-term target.

Rajan also favors formation of a monetary policy committee, as opposed to the current autocratic powers enjoyed by the governor, a set-up that would bring the RBI more in line with the practice at major central banks elsewhere.

"He is a highly credible, experienced economist. He has no central banking background so it will be a steep learning curve," said Robert Prior-Wandesforde, economist at Credit Suisse in Singapore.   Continued...

India's chief economic adviser Raghuram Rajan speaks during an interview with Reuters in New Delhi March 11, 2013. REUTERS/B Mathur (INDIA - Tags: BUSINESS) - RTR3F02O