Chief economic adviser Raghuram Rajan walks into hot seat of RBI Governer, replacing Subbarao on September 5, at a time when the Indian economy is facing its worst crisis since 1990-1991.
Most analysts are of the view that the RBI will likely make some important changes under the new regime, with greater focus on the currency and prices,while a few economists said the RBI might begin targeting an inflation level to bring down the consumer price index. Reuters polled 17 economists, with a majority viewing that the currency will be the top priority for Rajan but the consensus showed it will likely weaken to 69 per dollar,implying a further 7 percent fall from Monday's spot rate of 64.10.
Though the analysts said the RBI under the new regime of Raghuram Rajan will be plagued by the populist mood of the political leadership on the eve of General Election in next six months, but still likely to make some important changes, may be some half hearted steps. While most expected greater focus on the currency and prices, a few economists said the RBI might begin targeting an inflation level while bringing the consumer price index into the realm of policy making.
So it will be crucial tussle between economic judgement of RBI VS. New Delhi's political leadership not risking the danger of losing the throne of Delhi, without the populist dollies on the eve of election, irrespective of all other circumstances.This is the substances of what the sum total Reuters poll of 17 economists as :
With elections due in 2014, New Delhi's subsidy programme, most recently the food security bill, could blow a hole into the country's weak finances -- one of the biggest causes of the rupee's thrashing, when policymakers are struggling hardest to find a way out with both trade and current account deficits.
Despite all that and the clamour for easy monetary policy, the RBI should be expected to maintain its tough stance on inflation and check currency volatility. Analysts also said under Rajan the RBI could be expected to improve its communication with markets, but it will be a difficult job, especially when the government lacks a majority in the parliament and due to the upcoming elections which can tie Rajan's hands.