How Money Markets May React to RBI Governor Patel’s Resignation

Here is what money market experts made of Patel’s abrupt resignation.

3 min read
A file photo of former RBI Governor Urjit Patel.

Urjit Patel resigned as the governor of the Reserve Bank of India after a long standoff with the Narendra Modi government.

Following the resignation, the dollar-rupee one-month forward contract spiked 1.1 percent to 72.38 against the dollar and the Singapore-traded Nifty futures lost 1.3 percent to 10,380 at 5:28 pm.

Rupee, stocks and bonds will extend declines on Tuesday as investors assess the fallout of Reserve Bank of India Governor Urjit Patel’s resignation, according to Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co.

“This was completely unexpected coming just ahead of a scheduled board meeting. We will see a knee-jerk selloff in all asset classes on Tuesday. And if the declines come with a bad poll outcome for the BJP, we may see a big drop.”
Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co

Here is what money market experts made of Patel’s abrupt resignation:

Jamal Mecklai Of Mecklai Financial Services

“It would be pretty rocky. The rupee has already fallen to 72.50 in the non-deliverable market. My sense is that there is no real operational fundamental change. This is really a reflection on the politics. Usually political instability is overplayed. But it looks pretty grim right now and there is no way of knowing what’s going to happen.

It is very awful. Frankly, after the last board meeting it was clear that something was going to happen. No self-respecting person can sit in a position where they are being pushed around, and pushed around publicly. I think it will be very difficult to find somebody. We have to recognise now that the government’s style of functioning is not what the RBI needs or wants.”

Ananth Narayan, SP Jain Institute Of Management And Research

“It is a complete shocker. I am in Hong Kong meeting investors and the reaction internationally is one of shock. Let's not forget that we have over $50 billion investments into debt and over $400 billion in equities. And all of them are watching extremely closely to see what this is all about. Unfortunately, this is coming on the back of what has been a pretty public disagreement between the government and RBI. So, it is only natural to jump to a conclusion that the governor has resigned not because of personal reasons but the disagreements.

The benefit of the doubt, rightly or wrongly, will lie with the RBI. The RBI is seen as a credible entity. And this will start off as the government probably trying to do something inappropriate. And the worst fears will be kindled. All eyes now on who the replacement will be and what steps will be taken in the aftermath of the replacement coming through. All the contentious issues discussed so far, I hope and pray the government comes with a credible alternative right now and does not precipitate the decision on any of these issues.”


Krishna Memani, Chief Investment Officer, Oppenheimer Funds

“This is a totally self-inflicted wound. It didn't have to happen this way. Political disagreements are nothing new. Trying to resolve this in an amicable manner would've been far more better for everyone.

The timing is not as bad as it could have been. If the dollar was strengthening and oil prices were heading higher and the global economy was accelerating I think the challenge would have been far more acute. This will have consequences for India but given the environment the timing isn't as bad as it could've been.

The resignation itself wasn't a co-incidence. If he had resigned after the elections it would've been for nothing. I think he [Urjit] is trying to make a political point, and a very important point, that the RBI needs to be independent. It has to incorporate the political thinking of the current government in some way but it cannot be on a daily basis. The fact that it is coming so close to the election makes it even more problematic.”

(This story was first published on BloombergQuint.)

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