Press Trust of India
Mumbai, Dec 31: He always ruled out being a ‘cheerleader for the markets’, but it was the multiple rate cuts by RBI Governor Raghuram Rajan and his ceaseless efforts to keep inflation under check that turned out to be the biggest cheers for the Indian financial markets in 2015. It was one of his most famous oneliners — “I am Raghuram Rajan and I do what I do” — that eventually summed up the year 2015 for the central bank and the same is expected to hold true in the new-year as well when RBI cracks its whip on banks to clean up their balance sheets and also compete with the financial markets when it comes to being source for funds.
Rajan’s term ends on September 3, 2016 and whether the outspoken governor gets an extension, like his most of his predecessors, or not is something that will be keenly watched in the new-year. It would be interesting in the context of the public postures he has taken on many issues ranging from ‘Making in India’ to his reference to Hitler and on intolerance, which have been interpreted in various quarters as being against the current regime.
At the same time, there have been words doing the rounds that Rajan is personally liked by the Prime Minister and there have been rumours about he being in race for some larger roles including the next head of International Monetary Fund, where he has served in the past as the Chief Economist. Looking back at 2015, the year will also be remembered for cutting short the wider powers of the central bank, including the governor’s own prerogative to set the rates or moving the public debt management out of the Mint Road.
During the year, RBI became an inflation-targeting central bank, while Rajan also kick-started the era of differentiated banking by giving out in-principle approvals to 11 payments banks and 10 small finance banks. While the aspirants of small finance banks are populated largely by microfinance institutions, the payments bank licencees are from the corporate world such as Ambanis, Birlas, Mahindras along with the telecom biggies like Airtel and Vodafone. With certainty around achievement of the near-term inflation objective of 6 per cent increasing, Rajan made a dramatic shift in his policy stance early in the year towards being accommodative and announced a surprise rate cut on January 15. He followed it up with three similar moves during the year, cutting rates by a cumulative 1.25 per cent in 2015.
All his rate cuts were welcomed by the stock market with huge rallies, while inflation remaining under check gave the government much-required legroom in its policy moves. The 6-per cent headline inflation target for January 2016 is part of the ‘glide path’ suggested by the deputy governor Urijit Patel-led Committee, and for RBI the tougher task of yanking it down to 4 per cent in next two years starts now. The shift to becoming the 27th inflation-targeting central bank, joining the league of the US Fed, Bank of England and the Bank of Japan, has not been easy for Rajan and his core team, as people from across the board, including his colleagues and former RBI top officials and North Block mandarins initially opposed the move or cautioned against it.
