Rajan’s deputy appointed RBI Governor

New Delhi / Bloomberg

Prime Minister Narendra Modi promoted a deputy governor to lead India’s central bank, ensuring that sweeping reforms initiated under Raghuram Rajan would continue.
Urjit Patel, who oversees the monetary policy department at the Reserve Bank of India under Rajan, has been appointed for three years, the government said in a statement on Saturday.
Patel, 52, has been a key architect of the central bank’s biggest overhaul in eight decades, including a shift to a consumer-price inflation target and the creation of a rate-setting panel. A fiscal conservative, Patel in 2006 argued that large budget deficits have depressed India’s savings and investment.
“Urjit Patel’s appointment would imply continuity of monetary policy,” Sonal Varma and Neha Saraf, economists at Nomura Holdings Inc., wrote in June. “He is generally perceived as more hawkish.”
Patel holds a doctorate degree in economics from Yale University. He joined the central bank in 2013 from Boston Consulting Group. He has also advised Indian governments, worked with the International Monetary Fund and was in charge of business development at Reliance Industries Ltd. — controlled by India’s richest man Mukesh Ambani.

Bond rally jolts inflation
The rally in Indian sovereign bonds hit a wall this week as surging inflation weakened the outlook for interest-rate cuts. Consumer prices jumped 6.07 percent in July from a year earlier, breaching the upper bound of the Reserve Bank of India’s target range, official data showed Aug. 12. Peerless Funds Management Co. and DBS Bank Ltd. are among investors skeptical about further gains in bonds after the benchmark 10-year yield slid last week to its lowest level in seven years.
“Inflation may remain high in the near term before we see the impact of the above-average monsoon rainfall feed into food prices,” said Bhupesh Bameta, head of research for currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. “CPI above the RBI’s tolerance band has faded the prospects of a rate cut in the immediate future.”
The yield on government notes due January 2026 ended little changed from Aug. 12 at 7.10 percent in Mumbai, prices from the central bank’s trading system show. Its close of 7.08 percent on Aug. 11 was the lowest for a benchmark 10-year security since Sept. 2009. The yield dropped four basis points on Friday after cut-offs for some bonds at the government’s weekly debt auction came in below estimates.
Rajan left the benchmark repurchase rate unchanged at a five-year low of 6.50 percent at his last review on Aug 9. The monetary policy stance remains accommodative, he said, while flagging upside risks to inflation.
India’s rupee declined 0.4 percent on Friday and was down 0.3 percent for the week at 67.06 per dollar, according to prices from local banks compiled by Bloomberg.