Indian central bank chief to step down

Shocking decision by RBI governor follows strident criticism from ruling party members

Reserve Bank of India governor Raghuram Rajan penned a long letter to staff explaining his decision.
Reserve Bank of India governor Raghuram Rajan penned a long letter to staff explaining his decision.

MUMBAI • India's central bank governor Raghuram Rajan, who has faced criticism from members of the ruling party for keeping interest rates too high, stunned officials yesterday by announcing that he would step down when his term ends on Sept 4.

Mr Rajan, a former chief economist at the International Monetary Fund, has been popular with foreign investors for his efforts to tackle inflation. He won praise for helping rescue India from its worst currency crisis in more than two decades after taking the helm in September 2013.

But in a nearly 900-word letter to staff, he said he planned to return to academia, even as he noted that two of his actions - the creation of a monetary policy committee to set interest rates and the clean-up of the banking sector - remained unfinished.

"While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as governor ends on Sept 4, 2016," Mr Rajan said in the letter released by the Reserve Bank of India (RBI).

"I will, of course, always be available to serve my country when needed."

Mr Rajan, who is on leave from the University of Chicago, was appointed RBI governor by the previous Congress government, where he had served as chief economic adviser to the finance minister for about a year before taking the helm of the central bank.

"The government appreciates the good work done by him and respects his decision. A decision on his successor would be announced shortly," Finance Minister Arun Jaitley said in a tweet yesterday.

Although feted by investors, Mr Rajan faced strident criticism from right-wing members of Prime Minister Narendra Modi's Bharatiya Janata Party (BJP), including MP Subramanian Swamy, who has waged a public campaign against his economic policies.

Mr Rajan had also veered into topics - such as intolerance in society - that have angered some BJP members, as did recent comments that were seen by some government officials as playing down their economic accomplishments.

Still, Mr Rajan was known to have a good working relationship with Mr Modi, with the Prime Minister calling the him a "good teacher" on economic matters.

Government officials had previously said that Mr Modi's administration would reappoint the governor, should he wish to stay on.

Current RBI deputy governor Urjit Patel, State Bank of India chairman Arundhati Bhattacharya, the finance ministry's chief economic adviser Arvind Subramanian and the government's economic affairs secretary Shaktikanta Das have previously been named by analysts as potential replacements should Mr Rajan leave.

Analysts said markets would likely react negatively tomorrow, at a time when global factors, such as Britain's referendum on European Union membership, are already weighing on investors.


A version of this article appeared in the print edition of The Sunday Times on June 19, 2016, with the headline 'Indian central bank chief to step down'. Print Edition | Subscribe