Reserve Bank of India head steps down in potential blow to central bank independence
Reserve Bank of India Gov. Urjit Patel, the head of the central bank, unexpectedly resigned on Monday, leading investors to worry about who could replace him and what his departure could mean for the central bank’s independence.
Patel said in a statement he resigned for personal reaso. Now investors are waiting for news on who could replace him — and how attached any new representation will be to the government, which has been critical of the central bank over the past months.
But investors seem spooked.
The Indian rupee USDINR, -0.0276% was one of the worst performing emerging market currencies against the dollar on Monday, with the greenback buying 72.5200 rupees, its highest level in a month, up from 71.3750 late Friday in New York. This year, the dollar rallied 13.5% against the rupee, according to FactSet.
In September, the Indian government committed to shoring up the rupee after the currency felt the pain of uncertainty over faltering U.S.-China trade ties.
India’s S&P BSE Sensex 1, -2.00% stock benchmark ended the session 2% lower on Monday, though it remains up 2.7% for the year. The iShares MSCI India ETF INDA, -4.29% dropped 4.2% and is sporting a near 16% decline in 2018, according to FactSet.
Central bank independence has been a big topic for investors in emerging and developed markets this year. For one, worries swelled around the central bank of the Republic of Turkey and Prime Minister Recep Tayyip Erdogan, who repeatedly spoke out against the higher interest rates the market demanded in the face of a selloff in the Turkish liraUSDTRY, +0.0469% . Market attention on the topic even expanded to the Federal Reserve, after President Donald Trump began critiquing Fed Chairman Jerome Powell’s monetary policy.
In India, the governing Bharatiya Janata Party is waiting the results of five state elections, and preparing for a general election in the spring of 2019. Further, a debate on the so-called GDP back-series — a rebased gross domestic product statistic that is said to have an upgraded methodology, but also raised India’s growth rate significantly — has erupted and has not yet been resolved. And the RBI has come under fire from the government about its attempt to clean up state government’s balance sheets, which are weighed down by non-performing loans.
Besides internal struggles, India has been roiled by global oil market volatility. The country is a net oil importer CLF9, +0.41% and still buys oil from Iran. International sanctions on doing business with Iran, as well as the oil price peak before it dropped off dramatically over the past weeks, have created a bumpy ride for India’s businesses and consumers. In November, India was one of eight countries who received an exemption from the U.S. for buying Iranian oil.