MUMBAI: Top economist Raghuram Rajan, who is renowned for predicting the 2008 global financial crisis, takes over as the head of India’s central bank on Wednesday amid the country’s worst financial storm in years.
Rajan, a high-profile former IMF chief economist, replaces Duvvuri Subbarao as governor of the Reserve Bank of India (RBI) which has been battling to halt the plummeting rupee amid a sharp economic slowdown.
Rajan arrived at the RBI headquarters in the financial centre Mumbai on Wednesday and met his new colleagues ahead of a handover from Subbarao. He will take charge operationally on Thursday.
The bank said he would issue a statement at 5.30pm (1200 GMT).
Rajan, an outspoken diplomat’s son described by the local media as an “economist with rock star appeal”, takes charge as some analysts fear the once-booming South Asian economy could be heading for a meltdown.
The 50-year-old inherits an economy struggling with a record current account deficit, a currency which has lost up to a quarter of its value against the dollar this year and annual growth at its weakest in a decade.
Investors will be looking to Rajan, one of the few economists who warned that sub-prime lending could lead to calamity ahead of the 2008 crisis, to introduce policies to calm jittery markets and stabilise the rupee.
“It would be unfair to expect magic from one person,” said Siddhartha Sanyal, chief India economist with Barclays Capital. “But he is well-equipped to deliver the best one can, given his credentials.”
Abheek Barua, chief economist with HDFC Bank, called Rajan “more innovative” than Subbarao who spent five years at the helm of the RBI. “I feel he will be more aggressive. His first task will be to stabilise the rupee and later help curb some of the liquidity-tightening measures to help drive growth.”
The RBI has introduced a series of measures in recent months to try to halt the slide of the rupee, Asia’s worst-performing currency this year, including raising short-term interest rates and tightening cash in the system.
The rupee traded at near-record lows of 68.6 to the dollar early on Wednesday. But dealers reported possible RBI intervention, by selling dollars through state-run banks, to help pull it back to 66.91 in afternoon trade.
The rupee has been forecast by Deutsche Bank and Standard Chartered to slide to 70 to the dollar in coming months.
A depreciating rupee makes imports of everything from oil to coal and chemicals costlier, and comes as foreign capital inflows into India have dried up and the government tries to plug a gaping current account deficit.
Analysts have raised fears India could face a crunch of the sort it suffered in 1991 when a foreign exchange-strapped government had to pawn its gold for an International Monetary Fund (IMF) bailout.
Rajan left his post as a professor at the prestigious University of Chicago’s Booth School of Business and returned to India last year at the request of Prime Minister Manmohan Singh who wanted him as an adviser.
Rajan has cautioned against expecting too much from his new appointment, saying there are no “quick fixes”.
“No one can doubt the country’s promise,” Rajan said after being named in early August to the post, but he added that “there is no magic wand to make the problems disappear instantaneously”.
India’s economy grew by 4.4 per cent in the first three months of the fiscal year, the slowest quarterly expansion since 2009, figures released Friday showed.
The government is desperate to kickstart growth, which is running at an annual rate of five per cent, ahead of elections due by May next year. The RBI has come under growing pressure to cut interest rates to help business growth, but the bank also needs to counter high inflation.
Just days before retiring, Subbarao blamed the government for failing to reduce the current account deficit, hurting the rupee further and leaving the country vulnerable to an economic crisis.