By Manoj Kumar and Tony Munroe
NEW DELHI/MUMBAI Aug 6 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
"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
Rajan also favours 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.
"The jury is out on his monetary policy views. My assumption
is he will be pragmatic. Hopefully he will be a safe pair of
hands," he said.
Rajan was appointed to a three-year term. Subbarao was also
initially appointed for three years, and his tenure was then
extended by two years.
The rupee is down about 11 percent in 2013, making it the
worst performer in Asia, and emergency steps by the RBI on July
to drain liquidity and raise short-term interest rates have
failed to halt its decline.
The currency fell to a record low of 61.80 to the dollar
earlier on Tuesday. Meanwhile, economists have been cutting back
their growth forecasts for an economy that expanded by just 5
percent in the last fiscal year, its weakest in a decade.
While Rajan had been considered the most likely candidate to
be the next Reserve Bank of India governor when he returned to
India last year to accept the top advisory post at the Finance
Ministry in New Delhi, some in government had said his relative
outsider status might count against him.