Aug 9, 2013

Raghu, what can we expect from you?

Finally. Something to be optimistic about on India! Raghu's appointment fixes one part of the problem. His background - IIT, IIM, MIT, Chicago - is encouraging in that he will speak to the right people, and have a more nuanced understanding of the world we live in. 

My expectations on the policy front

  • Growth will be emphasisedNear term, his policy actions may not be dramatic, but the rhetoric from the central bank will change significantly. He will certainly talk more about growth, and de-emphasise the need for monetary tightening. This isn't to say that he'll roll back the measures on the rupee immediately - thats a nice hole dug up by Subbarao; will take some effort getting out of.
  • RBI will be dovishHe won't try to bring down international commodity prices and demand for food by raising interest rates. Unfortunately, he can't do away with the Minimum Support Price (MSP) system or the government's vote-for-populism strategy. What he can do is bring rationality to monetary policy again.
  • Greater coordination with the Finance Ministry
    Monetary and fiscal policy will be more coordinated - there won't be media transmitted spats between the FM and the RBI as Raghu is very much a Finance Ministry man.
  • Measures on the rupee will be rolled back once we get to around 58 on the spot. This can happen rather soon - say in 2 to 4 weeks.

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