What does Shaktikanta Das’ reappointment mean for markets?

Economists and markets have welcomed the reappointment of former IAS officer as the Governor. He is the first RBI chief to get an extension since the Bharatiya Janata Party-led government came to power in 2014. His predecessor Urjit Patel resigned before the end of his term amid differences with the government. And before him, incumbent Raghuram Rajan was not given an extension.

If he completes his full six years in office, Das will become the longest-serving in more than six decades.

What’s more, in what is seen as a vote of confidence in him, the government broke away from the norm of extending the governor’s term by two years and went ahead with the maximum three years permitted. And, his extension was announced nearly two months before his current term would end.

Das has been praised for maintaining a stable relationship with the government and his extension ensures the continuity of monetary policy.

Under Das, the central bank has cut the repo rate – from 6.25% in February to 4% in October 2021 – and embarked on a liquidity infusion plan. In its October monetary policy, the RBI stopped further liquidity infusion and announced variable rate reverse repo (VRRR) auctions to suck out excess liquidity. As the RBI starts to wind back its loose monetary policy, stability in its top leadership is seen as critical.

When Das took over in 2018, India’s foreign exchange reserves were $455 billion. With aggressive accumulation, he took it to $641 billion. He oversaw the bailout of YES Bank and the merger of Lakshmi Vilas Bank with DBS.

He also played a key role in ensuring that the government’s borrowing programme during the pandemic went smoothly without much disruption to markets.

According to CARE Ratings Chief Economist Madan Sabnavis:

  • Extension to Das a very good idea
  • Timing of announcement eliminates guesswork
  • It dispels notion of disagreements between RBI and govt
  • RBI played critical role during pandemic, ensured liquidity
  • Govt borrowing programme didn’t face hurdles
  • Restructuring of loans, moratorium helped banks with asset quality
  • Continuity of Governor good for markets
  • Das reiterated calibrated approach to unwind liquidity

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