India taps insider Patel as central bank head, seeking continuity

Sat Aug 20, 2016 1:46pm EDT
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By Manoj Kumar and Rafael Nam

NEW DELHI/MUMBAI (Reuters) - Reserve Bank of India insider Urjit Patel won a promotion to run the central bank on Saturday with a mandate to cement the bank's commitment to keeping inflation low, as the tenure of the man he is replacing draws to a turbulent conclusion.

Raghuram Rajan, a former International Monetary Fund chief economist feted as a "rock-star" central banker by investors, took financial markets by surprise in June by announcing he would return to academia after a single term as head of the RBI.

Prime Minister Narendra Modi ended two months of ensuing uncertainty by picking Patel, Rajan's 52-year-old deputy and a driving force behind the RBI's transformation into an inflation-targeting central bank.

Patel's appointment will reassure markets by offering the promise of monetary policy continuity just as inflation ticks higher, though he is likely to face pressure from government officials who would like interest rates to come down.

"He is the architect of inflation targeting. Investors don't want any change in policy direction," said Devendra Kumar Pant, chief economist at India Ratings & Research.

Patel will also need to address a clean-up of bad debts at banks that has prevented credit from flowing into India's $2 trillion economy, which is one of the world's fastest growing but is not generating enough jobs to cater for an expanding workforce.

At home, he is seen as carrying less political baggage than Rajan, which may help Patel in his dealings with Modi and Finance Minister Arun Jaitley.

Rajan faced a backlash from hard-right elements in Modi's Bharatiya Janata Party (BJP) for the social criticism he sometimes resorted to in his public statements. Patel is little known on the conference circuit and has refrained from making major policy speeches while deputy governor.   Continued...

Reserve Bank of India (RBI) Deputy Governor Urjit Patel attends a news conference after the bi-monthly monetary policy review in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui/File Photo