India central bank governor in shock resignation

Recent dispute between the Reserve Bank of India and the government could have been a major factor in Urjit Patel's decision, say analysts

Urjit Patel on Monday announced he was stepping down as governor of the Reserve Bank of India.EPA

Reserve Bank of India (RBI) governor Urjit Patel resigned for "personal reasons" on Monday, a decision analysts linked to intense pressure on the central bank from the government to ease regulatory curbs.

"On account of personal reasons, I have decided to step down from my current position effective immediately," Mr Patel said in a statement on the RBI website after financial markets had closed.

Analysts and market watchers said the recent dispute between the RBI and the government could have been a major factor in Mr Patel's decision to resign.

"Quite clearly the resignation of Urjit Patel shows that nothing has changed," said Yashwant Sinha, a former finance minister and member of the ruling Bharatiya Janata Party.

"The resignation is a clear sign of the government trying to interfere with the working of the RBI," he added.

Prime Minister Narendra Modi's government has been putting pressure on the RBI to ease its regulatory curbs on some banks, infuse more liquidity and relax capital norms as it faces a slowing economy ahead of general elections due by May.

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RBI Deputy governor Viral Acharya said in a speech in October that undermining a central bank's autonomy could be "catastrophic", prompting a public dispute that added to the rift between the bank and government.

The Modi government has stacked the RBI's 18-member board with its own nominees, in what critics say is a move to exert greater control over the central bank's regulatory powers.

Patel's sudden resignation is expected to roil financial markets on Tuesday. Investors will be keen to know who is Patel's replacement and the direction of the central bank's financial and monetary policy, analysts said.

"Markets certainly will be concerned unless there is further clarification that come through tonight," said R Sivakumar, head of fixed income at Axis Mutual Fund.

"I think tomorrow and over the next few days we can expect heightened volatility in the markets," he added.

Indian rupee one-month forwards slumped 1.6 per cent, the most since August, while stocks and bonds are expected to extend declines Tuesday as investors assess the fallout of the resignation.

“This was completely unexpected coming just ahead of a scheduled board meeting. We will see a knee-jerk selloff in all asset classes Tuesday,” according to Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management.