The Reserve Bank of India (RBI) on Monday said Urjit Patel has assumed charge as the Governor of the central bank on Monday. Patel succeeds Raghuram Rajan, who after serving a three-year term, is going back to academia. On August 20, the appointment committee of cabinet approved the appointment of Patel for three years, with effect from September 4.
The handover ceremony took place on Tuesday, since September 4 was a Sunday and Monday was a holiday due to Ganesh Chaturti. Patel’s tenure as deputy governor was extended earlier this year. “Dr Patel has also served at the International Monetary Fund (IMF). He was on deputation from the IMF to the Reserve Bank during 1996-1997, and in that capacity he provided advice on development of the debt market, banking sector reforms, pension fund reforms, and evolution of the foreign exchange market,” RBI said. He was also a consultant to the Ministry of Finance (Department of Economic Affairs), from 1998 to 2001.
Rajan warns against low rates
Rajan, meanwhile, warned that law interest rates globally could distort markets and would be difficult to abandon. Countries around the world, including the United States and Europe, have kept interest rates low as a way to encourage growth. But countries could become "trapped" by fear that when they eventually raised rates, they "would see growth slow down," he said.
Low interest rates should not be a substitute for "other instruments of policy" and "various kinds of reforms" that are needed to encourage growth, Rajan said in a recent interview with The New York Times. "Often when monetary policy is really easy, it becomes the residual policy of choice," he said, when deeper reforms are needed.
His warning comes at a time when the world's central banks appear to be at a loss about how to get global growth moving again. A growing number of voices say that low rates are not doing the job and that governments must take other, more politically difficult steps to reinvigorate growth.
Protect central bank's right to say `no'
Rajan made a strong case for central bank's independence and said the governor's rank should be commensurate with his position. In his last public speech as RBI governor, Rajan argued for operational freedom of the central bank. “Multiple layers of scrutiny, especially by entities that do not have the technical understanding, will only hamper decision making,” he said, suggesting that, instead, the government-appointed RBI board - which includes ex-officio government officials as well as government appointees - should continue to play its key oversight role.
“In this environment, where the central bank has to occasionally stand firm against the highest echelons of central and state government, recall the words of my predecessor, Dr Subbarao, when he said “I do hope the finance minister will one day say, 'I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists.' I would go a little further. The Reserve Bank cannot just exist, its ability to say `No' has to be protected. At the same time, the central bank cannot become free of all constraints, it has to work under a framework set by the government,” Rajan said during a talk.
