The Central Bank Governor of India will not serve a second term

The Central Bank Governor of India will not serve a second term

India’s outgoing central bank chief, Raghuram Rajan, deserves credit for disassociating his country from broader emerging-market woes. His departure raises questions whether India can stay the only good BRIC on the block.

The former International Monetary Fund chief economist said in a letter of June 18, 2016 that he won’t serve past his term, which ends in September. While theOutgoing Central Governor of India exit isn’t a total surprise given a tense relationship with the government, it will rattle investors nonetheless. New Delhi, it seems, couldn’t live Rajan any longer.

The INR will likely weaken on the news, and India’s financial markets, for the first time in a couple of years, will find themselves exposed to world events, an inauspicious place to be the week the U.K. votes on whether to remain in the European Union.

Rajan arrived on the job in 2013, when India was being lashed by outside forces. Years of lax monetary policy, stubborn inflation and a burgeoning current-account deficit made India vulnerable. The currency was plunging along with other emerging markets as the world absorbed the Federal Reserve’s shift away from quantitative easing.

The Reserve Bank of India, under Rajan, moved quickly to restore the faith, alleviating a balance-of-payments crisis by providing dollar funding to oil importers and opening new channels for foreign capital to flow into India’s banks.

His biggest credit goes to breaking the back of inflation expectations, using the discipline of an inflation target and unpopular rate increases. India comfortably faded from the economic headlines, unlike Brazil, Russia and China, its BRIC brethren.

Rajan leaves India is considerably better condition than when he came in. The current-account deficit was just 1.1 % of gross domestic product last year, the lowest in nine years. Interest rates are lower than when he came in.

Yet India isn’t without worry. Inflation has perked up in recent months, and a new governor with less steely nerves may not follow through on the central bank’s longer-term project of getting inflation into the low single digits.

www.wsj.com


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